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Endogenous Growth and Stochastic Trends

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Author Info
Fatás, Antonio

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Abstract

This paper shows that there exists a strong positive correlation between long-term growth rates and the persistence of output fluctuations in a cross section of countries. We argue that the traditional explanation of persistence, a real business cycles model with exogenous productivity shocks, cannot produce this correlation. We propose an explanation based on an endogenous growth model with exogenous cyclical shocks. We find that, despite the cyclical nature of the shocks, output fluctuations are persistent and the degree of persistence is an increasing function of long-term growth rates. Growth dynamics become an important component of the transmission of business cycles. We conclude that the analysis of economic fluctuations in models where technological progress is assumed to be exogenous can be misleading.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1340.

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Date of creation: Feb 1996
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Handle: RePEc:cpr:ceprdp:1340

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Related research
Keywords: Business Cycles; Economic Growth; Persistence; Stochastic Trends;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

Cited by:
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  1. Klaus Reiner Schenk-Hoppé, . "Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series (Revised Version)," IEW - Working Papers iewwp054, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  2. Olaf, POSCH & Klaus, WAELDE, 2005. "Natural volatility, welfare and taxation," Discussion Papers (ECON - Département des Sciences Economiques) 2005009, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  3. Joao Ejarque & Stephen McKnight, 2006. "Can we identify the relative price between consumption and investment?," Economics Discussion Papers 615, University of Essex, Department of Economics. [Downloadable!]
  4. Boyan Jovanovic, 2004. "Asymmetric Cycles," NBER Working Papers 10573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Marta Aloi & Laurence Lasselle & David G McMillan, 2000. "On the Persistence of Output Fluctuations in High Technology Sectors," Discussion Paper Series, Department of Economics 0013, Department of Economics, University of St. Andrews. [Downloadable!]
  6. Galindev Ragchaasuren, 2005. "On the Effect of Monetary Stabilisation Policy on Long-run Growth (Revised September 2005)," Economics Discussion Papers 587, University of Essex, Department of Economics. [Downloadable!]
  7. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank. [Downloadable!]
  8. João Ejarque & Ana Balcão Reis, 2003. "More Lessons from Taking an AK Model to the Data," Discussion Papers 03-37, University of Copenhagen. Department of Economics. [Downloadable!]
  9. João Ejarque & Ana Balcão Reis, 2003. "The Poverty of Linear Nations: Lessons from Taking an AK Model to the Data," Discussion Papers 03-06, University of Copenhagen. Department of Economics. [Downloadable!]
  10. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October. [Downloadable!] (restricted)
  11. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2000. "Growth and business cycles," Staff Report 271, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  12. Francisco Xavier Lores, 2001. "Growth And Cyclical Fluctuations In Spanish Macroeconomic Series," Economics Working Papers we014609, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  13. Antonio Fatás, 2002. "The Effects of Business Cycles on Growth," Working Papers Central Bank of Chile 156, Central Bank of Chile. [Downloadable!]
  14. Giorgio Fagiolo & Giovanni Dosi, 2002. "Exploitation, Exploration and Innovation in a Model of Endogenous Growth with Locally interacting Agents," LEM Papers Series 2002/25, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
    Other versions:
  15. Francisco Xavier Lores, 2001. "Cyclical Behaviour Of Consumption Of Non-Durable Goods: Spain Versus U.S.A," Economics Working Papers we014710, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  16. Surajit Deb, 2003. "Terms of Trade and Supply Response of Indian Agriculture: Analysis in Cointegration Framework," Working papers 115, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
  17. Galindev Ragchaasuren, 2007. "Monetary Stabilisation Policy and Long-run Growth," Money Macro and Finance (MMF) Research Group Conference 2006 48, Money Macro and Finance Research Group. [Downloadable!]
  18. Larry E. Jones & Rodolfo E. Manuelli & Ennio Stacchetti, 2000. "Technology (and policy) shocks in models of endogenous growth," Staff Report 281, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  19. K Blackburn & A Pelloni, 2002. "Growth, Cycles and Stabilisation Policy," Centre for Growth and Business Cycle Research Discussion Paper Series 12, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  20. K Blackburn & A Pelloni, 2001. "On the Relationship Between Growth and Volatility in Learning-by-Doing Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 01, Economics, The Univeristy of Manchester. [Downloadable!]
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