Technical progress and aggregate fluctuations

We compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change, all of which are highly autocorrelated. The results obtained are quite sensitive to the precise form of this stochastic process. In particular: the results depend on whether growth is deterministic or stochastic and, in each case, are quite sensitive to the persistence of an innovation. The model does a relatively poor job of accounting for features of observed business cycles when technical change is difference-stationary and does a better job when technical change is trend-stationary but highly autocorrelated.