Technological Change and the Roaring Twenties: A Neoclassical Perspective

Annualized output growth in the United States was highest during the 1920s, as compared to any other of Field’s (2003, 2009) growth cycles. This motivates us to address the causes of the Roaring Twenties in the United States. In particular, we use a version of the real business cycle model to test the hypothesis that an extraordinary pace of productivity growth was the driving factor. Our motivation comes from the abundance of evidence of signi…cant technological progress during this period, fed by innovations in manufacturing and the widespread introduction of electricity. Our estimated total factor productivity series generate arti…cial model output that shows high conformity with the data: the model economy successfully replicates the boom years from 1922-1929. Corresponding author: Sharon G. Harrison, Department of Economics, Barnard College, Columbia University, 3009 Broadway, New York, NY 10027, USA, [email protected], ph: 212-854-3333, fax: 212-854-8947. yWe would like to thank for comments: Michael Burda, Jang-Ting Guo, Ian McLean, Robert Lucas, Richard Rogerson, and the participants in the 2008 NBER Summer Institue DAE workshop, at the 2008 AEA-ASSAmeetings, and at SWIM 2008. All remaining errors are, of course, our own. Lachlan Deer provided expert research assistance. Keywords: Real Business Cycles, Roaring Twenties. JEL Classi…cation: E32, N12.