Why Is Productivity Procyclical? Why Do We Care?

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Abstract
This chapter takes up another theoretical issue that has challenged productivity analysis: the problem of short-run procyclical productivity fluctuations. Conventional analysis regards these fluctuations as a nuisance that obscures long-run movements in total factor productivity (also referred to as multifactor productivity). The chapter treats them as potentially interesting macroeconomic variables that need to be understood in their own rights. Several competing explanations are studied, including procyclical technology shocks, the effects of imperfect competition with increasing returns to scale, variable utilization of inputs over the business cycle, and resource reallocations over the cycle. A commentary is also included at the end of the chapter.

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