Williams notes productivity growth swings from minus 2 to 7 percent yearly versus 2 percent long-run average.
“Year-over-year productivity growth swings from minus 2 percent to 7 percent, compared to the long-run average of just over 2 percent ( Figure 1 ).”
Williams identifies two distinct productivity regimes: 3 percent during boom periods versus 1.5 percent otherwise.
“In each of these episodes, productivity growth averaged around 3 percent. At other times, relatively slow productivity growth of around 1-1/2 percent prevailed.”
Williams says standard theory paradoxically predicts productivity increases cause downturns with declining investment and hours worked.
“Assuming immediate recognition, standard macroeconomic theories predict a paradoxical result: an increase in trend productivity growth drives up real interest rates and causes an economic downturn, with hours worked, investment, and output declining.”