The economic determinants of technology shocks in a real business cycle model

Creative destruction due to new technologies causes both long-run growth and short-run business fluctuations. New technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units. Obsolescence induces an adjustment period during which growth rates gradually fall. At some endogenously determined point, research for the next technology starts. Once the new technology is discovered, a technology shock occurs and the next cycle starts. This is shown in a continuous time RBC model with risk-averse agents where savings can be used for financing deterministic capital accumulation and stochastic R&D for new technologies, (C) 2002 Elsevier Science B.V. All rights reserved.