We propose the use of technological standardization as a novel indicator of technological change. Standardization is an important feature of technological progress in many industries and triggers the adoption of new or drastically improved technologies. Our new indicator allows us to identify technology shocks and analyze their impact on the cycle, but also enables us to investigate the cyclical impact on technology adoption.

First, our results suggest that not only inventive activity, but more importantly the actual adoption of new technologies is endogenous to the cycle. Technology is thus not a purely exogenous phenomenon.

Second, the identifi ed technology shock diff uses slowly and the positive reaction of output and investment is S-shaped as is typical of technological di ffusion. Before picking up permanently, total factor productivity temporarily decreases as the newly adopted technology is incompatible with installed physical, human and organizational capital.

Third, we fi nd that standardization is an essential mechanism for anchoring expectations about future movements of macroeconomic aggregates as evidenced by the positive and immediate reaction of stock market data to a technology shock.