Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 09/2008

A Univariate Model of Aggregate Labour Productivity

by

Robert Dixon and G. C. Lim

Date: May 2008

Abstract: In this paper, 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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