ECON Seminar / Mehmet Yörükoğlu (Koç University)

This paper studies how rapid technological change following major technological breakthroughs moderates real and nominal fluctuations. A New Keynesian DSGE model with vintage technology adoption and learning shows that the reorganization and learning required to absorb new technologies dampen volatility, especially in economies closer to the technological frontier. If central banks ignore this learning when estimating potential output and the output gap, they respond more aggressively to shocks, further smoothing fluctuations and flattening the measured Phillips curve. Cross-country evidence supports these implications: proximity to the frontier explains much of the moderation, while alternative explanations play a much smaller role