STOCHASTIC GROWTH IN THE UNITED STATES AND EURO AREA

This paper estimates, using data from the United States and the Euro Area, a two-country stochastic growth model in which both neutral and investment-specific technology shocks are nonstationary but cointegrated across economies. The results point to large and persistent swings in productivity, both favorable and adverse, originating in the United States but not transmitted to the Euro Area. More specifically, the results suggest that while the Euro Area missed out on the period of rapid investment-specific technological change enjoyed in the United States during the 1990s, it also escaped the stagnation in neutral technological progress that plagued the United States in the 1970s.