Product innovation and the business cycle

Boyan Jovanovic, Saul Lach

    Research output: Contribution to journalArticle

    Abstract

    Microeconomic data show two important facts about new products. First, some products are more important than others. And second, it takes them years to penetrate the market significantly. Our calibrated model with these features overpredicts the autocovariance of U.S. GNP at long lags, but underpredicts it at short lags. The latter is not surprising, since the model leaves out other obvious high-frequency shocks. The puzzle is why the U.S. GNP data do not show stronger autocorrelation at higher lags. A surprising finding is that while the speed of diffusion has huge level effects, it plays a minor role in shaping the business cycle.

    Original languageEnglish (US)
    Pages (from-to)3-22
    Number of pages20
    JournalInternational Economic Review
    Volume38
    Issue number1
    DOIs
    StatePublished - Feb 1997

    ASJC Scopus subject areas

    • Economics and Econometrics

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