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=AK^alphaL^(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.