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Macroeconomic Analysis of Foreign and Domestic Spillover Effects at the Industrial Level

This study analyzes the effects of higher productivity on various economic indicators such as factor demand, unemployment, output prices, wages, competitiveness, exports, imports, gross output, material inputs, real interest rates, and real incomes.

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Macroeconomic Analysis of Foreign and Domestic Spillover Effects at the Industrial Level

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  1. A macroeconomic analysis of foreign and domestic spillover effects at the industrial level by Thomas von Brasch, Ådne Cappelen, Håvard Hungnes and Terje Skjerpen

  2. Effects of higher productivity • When productivity increases, firms can produce more with less inputs so factor demand is lower. Unemployment goes up • Output prices and wages fall. Competitiveness improves and exports increase while imports fall. Lower prices increase demand and lead to higher gross output counteracting the negative effects of lower factor use • Value added increases (gross output fall but material inputs even more) • Lower prices lead to higher real interest rates which lowers demand. But how should we consider this in a small open economy setting. If the increase in productivity is a national phenomena and not «global», it is reasonble to think that the central bank will lower interest rates and keep real rates roughly constant at least in the longer run • With wage bargaining it is reasonable to assume that a productivity increase will increase increase real product wages just as much. Thus real incomes in households will increase and stimulate demand • Less

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