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The Pre-Global-Financial-Crisis Slowdown in
Productivity Growth*
September 24, 2015
John G. Fernald
FRBSF and Visiting Scholar, EIEF
Gilbert Cette and Benoit Mojon
Banque de France
* The views expressed here are our own and do not necessarily
reflect the views of the Federal
Reserve Bank of San Francisco, the Banque de France, or anyone
else associated with these
institutions
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Diverging TFP performance 1995-2007
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Diverging TFP performance 1995-2007
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Diverging TFP performance 1995-2007
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Diverging TFP performance 1995-2007
• TOP DOWN PERSPECTIVE
• U.S. Exceptional 1995-2003
• Technology slowed
• Not mismeasurement
• France/Germany Structural
rigidities
• Italy, Spain Capital flows
fueled misallocation
• U.K. Mismeasurement post-
2008?
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Accounting for U.S. growth: Varying rates of normal
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Slow U.S. TFP growth since 2003
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Rise and fall of TFP growth in IT-intensive market services
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Rise and fall of TFP growth in IT-intensive market services
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Post-2004 slowdown
not in “bubble
sectors” (finance,
construction,
mining/ag…)
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Rise and fall of TFP growth in IT-intensive market services
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IT production had
late 1990s bulge
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Rise and fall of TFP growth in IT-intensive market services
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IT production had
late 1990s bulge
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Rise and fall of TFP growth in IT-intensive market services
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Market services had
2000-04 burst
(wholesale/retail
trade, info services,
business services)
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Rise and fall of TFP growth in IT-intensive market services
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Market services had
2000-04 burst
(wholesale/retail
trade, info services,
business services)
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Rise and fall of TFP growth in IT-intensive market services
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“The things at which Google and its peers excel, from Internet
search to mobile
software, are changing how we work, play and communicate, yet
have had little
discernible macroeconomic impact. …Transformative innovation
really is happening
on the Internet. It’s just not happening elsewhere.”
Greg Ip, Wall Street Journal, August 12, 2015
Productivity paradox 2.0
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“Today’s information age is full of sound and fury signifying
little.”
Martin Wolf, Financial Times, Oct 2, 2012
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A productivity problem or measurement problem?
• Goldman Sachs, Google, and others point to specialized
equipment, software,
and free digital goods
– Quality-adjustment is hard—maybe national accounts are behind
curve?
– Facebook, Google, etc. are free (to users)
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Growing mismeasurement doesn’t explain all
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Why did continental Europe diverge?
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No. Ideas flow across borders but have to be implemented
locally
Timing of “intangible investments” (e.g., reorganizations
associated with IT) can differ
Theory: Basu, Fernald, Oulton, Srinivasan (2003)
Evidence: Corrado, Haskel, Jona-Lasinio, Iommi (2012)
Should the same IT story apply equally everywhere?
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“Reallocations” and reorganizations that didn’t happen because
of
regulatory barriers E.g., van Reenen et al (2010), Bourlès,
Cette, Lopez, Mairesse, and Nicoletti (2013), Cette,
Lopez, and Mairess (2013)…
Institutions hold back technology in continental Europe
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Reis (2013), Gopinath et al (2015), model it as effect of
capital inflows
interacting with financial frictions
Underdeveloped financial sector channels funds to less
productive projects
Increasing misallocation
Macro implication: Exogenous decline in real interest rates
leads to low
productivity growth
Channel: Low-productivity firms get financed. Average
productivity of firms falls.
Why did TFP in peripheral Europe collapse relative to
frontier?
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* *
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Reis (2013), Gopinath et al (2015), model it as effect of
capital inflows
interacting with financial frictions
Underdeveloped financial sector channels funds to less
productive projects
Increasing misallocation
Macro implication: Exogenous decline in real interest rates
leads to low
productivity growth
Channel: Low-productivity firms get financed. Average
productivity of firms falls.
=>VAR with labor productivity (or TFP growth) and real
interest rates
Choleski identification with real interest rate last
Why did TFP in peripheral Europe collapse relative to
frontier?
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* *
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Real interest rate “shock” raises labor productivity (Euro
area)
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Historical decomposition: “Explains” some low periphery LP
growth
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What about the United Kingdom?
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An incredible coincidence?
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Coincidence…until the Great Recession
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TFP growth in many advanced economies slowed prior to Global
Financial Crisis
Story involves technology, structural rigidities, and capital
flows
Slowing technology growth at the frontier, reallocations that
didn’t happen because of
rigidities…and misallocation that did happen
As OECD (Future of Productivity) emphasizes, “diffusion” that
isn’t happening is key
U.K. remains a puzzle: Could import/export deflators be
misleading?
Takeaways
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Typically slower productivity growth after 1995…
and even slower 2004-07
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