The Source of Temporary Technological Shocks

The real business cycle model mimics the economic fluctuation very well, but its explanation relies heavily on the unimaginable temporary technological shocks, especially the negative technological shocks. Through introducing a finite consumption theorem in the preference and utility theory, this paper explains the permanent and temporary technological shocks. The paper also has constructed a production function and growth model including innovations and estimated it by employing US time series data and DOLS method. The estimation results have verified the validity of the proposed model.