Technology shocks
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Technology shocks are events in a macroeconomic model, that change the production function. Usually this is modelled with an aggregate production function that has a scaling factor.
A technology shock affects an industry or firm's productivity, this may be a positive shock - increasing the output for a given set of inputs, or a negative shock - decreasing the output for a given set of inputs. Negative shocks are much less common than positive shocks as technology rarely moves backwards.
- Y = Output
- L = Labour
- MPL = Marginal product of labour
The technology shock increases the output given the same level of, in this case, labour. The marginal product of labour is higher after the positive technology shock, this can be seen in the MPL (blue) line being steeper.
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