We have set out a model of labour productivity that
distinguished between shocks which change productivity
permanently and shocks which have transient
affects on productivity. The advantage of the analysis
is that it provided a coherent framework to identify
both the deterministic trend growth component and
the stochastic trend component which is driven by
productivity-enhancing (or productivity-slowing)
shocks. The empirical analysis showed that the
‘random walk with drift plus noise’ model, which is
based on the steady state in the Solow–Swan model