Stochastic Growth in the United States and Euro Area
Ireland, Peter. “Stochastic Growth in the United States and Euro Area”. Boston College Working Papers in Economics 713, 2009.
This paper constructs a two-country stochastic growth model in which neutral and investment-specific technology shocks are nonstationary but cointegrated across economies. It uses this model to interpret data showing that while real investment has grown faster than real consumption in the United States since 1970, the opposite has been true in the Euro Area. The model, when estimated with these data, reveals that the EA missed out on the rapid investment-specific technological change enjoyed in the US during the 1990s; the EA, however, experienced more rapid neutral technological progress while the US economy stagnated during the 1970s.