Zvi Hercowitz

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Zvi Hercowitz (Hebrew: צבי הרקוביץ‎) is an Israeli economist and economics professor. He was born in Rosario, Argentina, on December 21, 1945, and he emigrated to Israel in December 1965. In October 1969, after serving in the army, he began his studies at the Hebrew University in Jerusalem, where he received his B.A. in Economics in February 1973 and his M.A. in Economics in July 1975.

Hercowitz then enrolled at the University of Rochester. His areas of specialization were Macro and Monetary Economics and International Economics. In 1980, he completed his Ph.D. dissertation, "Money and the Dispersion of Relative Prices", under the supervision of Robert Barro.

Hercowitz joined Tel Aviv University in 1980, where he remains today. He also serves as an advisor to the Bank of Israel. He has been a visiting professor at Carnegie Mellon University, the University of Michigan, the University of Rochester, and the University of Western Ontario.

Hercowitz is best known for the idea of investment specific technological change, formulating the zero-income effect utility function for labor, and introducing both capacity utilization and household production theory into macroeconomics.

Influential Publications[edit]

1. "Money and the Dispersion of Relative Prices", Journal of Political Economy, April 1981. Variability over time in aggregate indices of price level, such as the CPI, is often associated with a greater dispersion in relative prices at a point in time. To model this phenomenon, Zvi Hercowitz uses a variant of the celebrated Lucas-Barro island model. In a world where people have incomplete information, individuals are confronted with the problem of determining whether price changes in specific goods are caused by general price inflation or by shifts in the supply and demand for this good. In the Lucas-Barro island model perfectly perceived money growth should not affect relative prices. Money growth has to be unperceived to have real effects. Using data from the German hyperinflation, an equation that relates price change dispersion to exogenous unperceived money shocks is estimated. Zvi finds that unperceived money growth does affect price dispersion, as the model predicts, while perceived money has no effect. This paper derives from Zvi's thesis at the University of Rochester.

2. "Output Growth, the Real Wage, and Employment Fluctuations", American Economic Review, December 1991, (with Michael Sampson). In this work Zvi Hercowitz and Michael Sampson develop and estimate one of the first models of economic growth and cycles. Endogenous long-run growth is formulated along the lines of Romer (1986). This engine for growth is dropped into a business cycle model in the spirit of Kydland and Prescott (1982) and Long and Plosser (1983). Shocks come about from both neutral and capital-embodied technological change. Unlike standard real business cycle models, temporary shocks have permanent effects on output and wages in this framework.

3. "Long-Run Implications of Investment-Specific Technological Progress", American Economic Review, June 1997, (with Jeremy Greenwood and Per Krusell). Casual empiricism suggests that technological progress is often embodied in the form of new and improved capital goods. Many examples come to mind: computers, robots, cell phones and the like. The paper analyzes the role of this type of technological change in U.S. economic growth. The results suggest that investment-specific technological progress accounts for the major part of U.S. economic growth over the postwar period.[1]

4. "Investment, Capacity Utilization, and the Real Business Cycle", American Economic Review, June 1988, (with Jeremy Greenwood and Gregory W. Huffman). This paper contains the utility function commonly referred to as Greenwood–Hercowitz–Huffman preferences. With this utility function there is no income effect on labor supply. As a result, labor can be solved for independently of consumption, which is a great simplification. In this research shocks to the efficiency of investment are the driving force for business. This is different than the typical TFP shocks used in the real business cycle literature. Last, the paper introduced capacity utilization into the modern business cycle literature.[2]

5. "The Allocation of Capital and Time Over the Business Cycle", Journal of Political Economy, December 1991, (with Jeremy Greenwood). This influential research introduced the Becker-Reid idea of household production into macroeconomics. (Another well-known paper by Benhabib, Rogerson and Wright did the same thing in the same issue!) The paper treats the household as small factory that produces output using household capital and household labor.

6."The Role of Investment-Specific Technological Change in the Business Cycle", European Economic Review, 2000, (with Jeremy Greenwood and Per Krusell). This research updates "Investment, Capacity Utilization, and the Real Business Cycle" by using the observed time-series process for the relative price of new capital.


  1. ^ Some history for this research is here: http://hdl.handle.net/1802/2375
  2. ^ An archive for this research is here: http://hdl.handle.net/1802/2688