What Happens When the Technology Growth Trend Changes? Transittion Dynamics and Growth Accounting

Rising rates of economic growth during the 1990s have inspired speculation about a shift in the underlying growth rates of technology and productivity. This paper considers the adjustment dynamics of such a change in a basic neoclassical framework that incorporates stochastic growth. Simulations of the model suggest that the dynamics of capital stock adjustment in response to changing growth paths can have important implications for measuring productivity trends and interpreting the results of growth accounting exercises, particularly when technological change is capital-embodied. *The views expressed in this paper are those of the author and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System or the Board of Governors.