Technology and leisure: Macroeconomic Implications

CAMA Working Paper 43/2017
Author name: 
Anil Savio Kavuri
Warwick J. McKibbin

While the impact of technology on production is widely researched, this study explores the economic implications of technology through the channel of enhancing leisure experience on the consumer side. We develop a theoretical model which allows for habit formation for a technology good purchased to enhance leisure activities. In contrast, for the normal consumption good, habits are irrelevant. A persistent fall in the relative price of the technology good and increased addiction to technology are shown to have significant macroeconomic consequences. For example, we show that these perturbations can drive the real interest rate below the rate of time preference and depress consumption growth of non technology goods. Modelling the framework with US data illustrates that model predictions of falling interest rates and consumption growth are consistent with the recent observations of declining technology’s relative prices and increases in technology good purchases.

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