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Co-movement, capital and contracts: 'normal' cycles through creative destruction

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Author Info
Francois, P.
Lloyd-Ellis, H. (Tilburg University, Center for Economic Research)

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Abstract

We develop a unified theory of endogenous business cycles in which expansions are neoclassical growth periods driven by productivity improvements and capital accumulation, while downturns are the result of Keynesian contractions in aggregate demand below potential output. Recessions allow skilled labor to be reallocated to growth promoting activities which fuel subsequent expansions. However, rigidities in production and contractual limitations, inherent to the process of creative destruction, leave capital severely underutilized. A key feature of our equilibrium is the endogenous emergence of long term supply contracts between capitalist owners and producers.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 62.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200362

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. F. Owen Irvine & Scott Schuh, 2005. "The roles of comovement and inventory investment in the reduction of output volatility," Working Papers 05-9, Federal Reserve Bank of Boston. [Downloadable!]
  2. Zhi Li & Xiaopeng Yin,, 2004. "Endogenous Business Cycles with Consumption Externalities," Econometric Society 2004 North American Summer Meetings 402, Econometric Society. [Downloadable!]
  3. Owen Irvine & Scott Schuh, 2007. "The roles of comovement and inventory investment in the reduction of output volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
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