Information and communication technologies over the business cycle

Abstract

This paper quantifies the relative importance of different sources of technological progress as determinants of short-run fluctuations in the US economy. In particular, it focuses on the role of the technical innovations associated with information and communication technologies (ICT). The paper points to three main findings. First, neutral technical change is the main determinant of the US aggregate fluctuations, and its contribution remained constant throughout the postwar sample. Second, the importance of ICT increased significantly during the last decades of the considered sample, which nowadays is responsible for approximately 1/5 of GDP fluctuations. Third, the variance reduction of exogenous shocks typically associated with the last decades of the postwar sample, mainly comes from ICT and neutral shocks, whereas the volatility of innovations in traditional capital remained relatively stable. Overall, we conclude that attention should be focused on identifying those incentives behind the adoption of knowledge and technology, an issue related to the neutral progress, rather than the quality or technology embedded in capital goods such as ICT assets.