Dear Johannes,

First thank you for your previous guidance, I am grateful.

I am confused about when should I put technology growth in measurement equations, I found that in some literature where technology is combined with labor and defined as persistent portion of technology Y=K^alpha*(AL)^(1-alpha), technology growth rate appears major observable variables’ measurement equations. whereas in some literature where technology appears as total factor productivity Y=A*K^alpha*L^(1-alpha), technology growth rate does not appear in observable variables’ measurement equations.

where Y is production, A is technology, L is labor, K is physical capital.

Therefore, when should technology growth rate appears in major observable variables’ equations?

Thank you very much and look forward to hearing from you.

Best regards,

Jesse

I would say whenever you have good data on that object.

Dear Johannes,

Thank you for your guidance, I am grateful.

I mean when should the growth rate of state variable-technology appear in the right hand side of measurement equations?

e.g. output_growth=technology_growth+(Y-Y(-1))+samplemeanoutput

where output_growth is observable growth rate, samplemeanoutput is sample avearage of observable growth rate, Y is output state variable.

Does it depend on the specification of production function? or the nature of technology shock: persistent/temporary?

Thank you very much and look forward to hearing from you.

Best regards,

Jesse

That specification is usually used if there is a unit root in technology so that `Y`

denotes detrended output.