Technology shock

Technology shocks are events in a macroeconomic model, that change the production function. The term shock is defined as a sudden change in economic terms. Usually this is modeled with an aggregate production function that has a scaling factor.

A technology shock is when there is a sudden change in technology to either benefit or worsen economic activity. This type of shock has big effects on companies that are solely dependent on technology as their main source of labor or production, such as manufacturing plants or oil/energy extraction.

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.

Positive technology shock

The Industrial Revolution is an example of a positive technology shock. The Industrial Revolution occurred between the 18th and the 19th centuries where major changes in agriculture, manufacturing, mining, transport, and technology occurred.