In this article, we set out a model of labour productivity which distinguishes between shocks which change productivity permanently and shocks which have transient affects on productivity. We show that this model is a type of unobserved components model – a random walk with drift
plus noise model. The advantage of this approach is that it provides a coherent framework to identify the deterministic trend growth component and also the productivity enhancing (or technology related) stochastic components. The model is applied to aggregate labour productivity in Australia
and the time series of technology shocks extracted is used to shed some light on the contributions of policy reforms to productivity.
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Document Type: Research Article
Department of Economics,The University of Melbourne, Melbourne,VIC 3010, Australia
Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne,VIC 3010, Australia
Publication date: 2012-06-01
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