Journal Article

A Model of TFP

Ricardo Lagos

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 4, pages 983-1007
Published in print October 2006 | ISSN: 0034-6527
Published online October 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00405.x
A Model of TFP

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  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • Economic Growth and Aggregate Productivity

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This paper proposes an aggregative model of total factor productivity (TFP) in the spirit of Houthakker (1955–1956). It considers a frictional labour market where production units are subject to idiosyncratic shocks and jobs are created and destroyed as in Mortensen and Pissarides (1994). An aggregate production function is derived by aggregating across micro-production units in equilibrium. The level of TFP is explicitly shown to depend on the underlying distribution of shocks as well as on all the characteristics of the labour market as summarized by the job-destruction decision. The model is also used to study the effects of labour-market policies on the level of measured TFP.

Keywords: E23; O41

Journal Article.  13793 words.  Illustrated.

Subjects: Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; Economic Growth and Aggregate Productivity

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