New study reveals how technology shocks drive US business cycles
Improvements in technology for making things people use every day make the economy grow, but when technology for making things used to make other things gets better, the economy shrinks at first. This happens because prices for things used to make other things change slowly. This research shows that these effects can be explained by a model with two sectors: one for things people use and one for things used to make other things. This suggests that changes in technology in different sectors can be a big reason for how the US economy goes up and down, and models used for understanding how money policies affect the economy can also explain how technology changes in different sectors affect it.