·Technology shocks In RBC theory,economic fluctuations are caused by productivity shocks. The Solow residual is a measure of productivity shocks:it shows the change in output that cannot be explained by changes in capital and labor. RBC theory implies that the Solow residual should be highly correlated with output.Is it? • Technology shocks • In RBC theory, economic fluctuations are caused by productivity shocks. • The Solow residual is a measure of productivity shocks: it shows the change in output that cannot be explained by changes in capital and labor. • RBC theory implies that the Solow residual should be highly correlated with output. Is it?