No. 309 - The Effects of Technology Shocks on Output Fluctuations: An Impulse Response Analysis for the G7 Countries

Direct and country-specific measures of technical progress are used in order to analyse the effects of technology shocks on output fluctuations in the G7. Technology shocks are measured as the unpredicted component in the dynamics of innovation, on the basis of patent statistics provided by the US Patent Office. Two different kinds of shock are identified for each economy: "country-specific", reflecting the national features of technological innovation, and "global", originating from the existence of common trends in patenting activity across the G7. Their effects on aggregate fluctuations are investigated within a multivariate nonlinear model for each country, where nonlinear dynamics are induced by the presence of a ratchet effect in output growth. The method adopted to examine the response of output to technology shocks is the Generalised Impulse Response Function. Both global and country-specific shocks are found to affect the long-run level of output in the G7 economies. Their effects, however, differ significantly across countries both in magnitude and in time profile.