The Procyclical Behavior of Total Factory Productivity : 1890-2004

Between 1890 and 2004, total factor productivity (TFP) growth in the United States has been strongly procyclical, while labor productivity growth has been mildly so. This chapter argues that these results are not simply a statistical artifact, as Mathew Shapiro and others have argued. Procyclicality results principally from demand shocks interacting with capital services which are relatively invariant over the cycle. This account contrasts with that offered by the real business cycle (RBC) program, which attributes economic cycles to technology shocks as measured by deviations in TFP from trend