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Decoding Productivity: Business Cycle Properties of Labor Productivity Growth

By Arturo Estrella


Abstract: Among the variables most often tracked by economic analysts and policymakers, the rate of growth of labor productivity is one of the most volatile and hardest to interpret, at least in the short run. Yet, it is often used to explain movements in inflation and output under the assumption that there are stable relationships between productivity growth and those variables. This paper uses frequency domain techniques to separate signal from noise in labor productivity growth and to examine its covariation with other variables over the business cycle. For instance, productivity growth is seen to have strong cyclical connections with unemployment, output growth, and inflation. The frequency domain results clarify these relationships and shed light on several long-standing issues, such as the alleged procyclicality of productivity growth, the Dunlop-Tarshis phenomenon, and the Reder hypothesis

Year: 2003
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