Dear Johannes,

My current model uses total factor productivity instead of labour-augmenting technology, I specify total factor productivity A follows an autogregressive form instead of technology growth rate ln(A/A(-1)) follows an autoregressive form. I set prior mean of autoregressive parameter rho to 0.75, I find posterior estimate of autoregressive parameter rho of total factor productivity is about 0.98, very close to 1 (unit root), is this an indication that I should specify technology growth rate ln(A/A(-1)) follow an autoregressive process instead of total factor productivity A follows an autoregressive process?

Assume A is total factor productivity in my model or labour-augmenting technology in alternative model. epsA is technology innovation. rho is autoregressive parameter. Y is production, K is capital, L is labour. alpha is capital share parameter.

My current model: production function: Y=A*(K^alpha)*(L^(1-alpha))

assume Abar is steady state of A.

Technology shock process: A=(1-rho)*Abar+rho*A(-1)+epsA

Alternative model: Y=(K^alpha)*((A*L)^(1-alpha))

assume technology growth rate ga=ln(A/A(-1))

assume gabar is steady state of ga.

technology growth rate ga process: ga=(1-rho)*gabar+rho*ga+epsA

Which specification do you think is more appropriate? or does it depends on whether i can get an autoregressive parameter of technology that is Less close to 1(unit root)?

Thank you for looking at the long post.