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Is Schumpeterian Creative Destruction a Plausible Source of Endogenous Real Business Cycle Shocks

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  • Jeff Wrase
  • Kerk Phillips

Abstract

This paper looks at the linkages between growth and business cycles by bringing together two strands of literature. We incorporate a quality ladders engine of growth into an otherwise standard real business cycle model. Our fundamental question is, can Schumpeter’s creative destruction process which leads to lumpy technological improvement over time also generate realistic business cycles? We use a standard real business cycle approach to solve for rules of motion in our state variables and proceed to generate artificial time series. We compare the statistical properties of these series with their historical counterparts to determine if the model mimics the real world closely. One advantage our approach has over the standard approach is that the trend component is included in our artificial series just as it is in the data. Hence, we are not tied to any particular filtering method when we compare simulations with the real world data. We find that Schumpeterian fluctuations alone cannot generate realistic business cycles. We also find, however, that a model with both Schumpeterian and standard RBC shocks performs better in many dimensions than a model relying on standard RBC shocks alon

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 428.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:428

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Keywords: endogenous fluctuations growth;

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  1. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
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Citations

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Cited by:
  1. Helmut Hofer & Torsten Schmidt & Klaus Weyerstrass, 2011. "Practice and Prospects of Medium-term Economic Forecasting," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(1), pages 153-171, February.
  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.
  3. Chase Coleman & Kerk Phillips, 2013. "Can Uncorrelated Shocks Generate Aggregate Autocorrelation?: Business Cycle Persistence in a Model with Endogenous Growth and Fluctuations," BYU Macroeconomics and Computational Laboratory Working Paper Series 2013-03, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  4. Galo Nuño Barrau, 2008. "Schumpeterian Foundations of Real Business Cycles," Working Papers 0805, International Economics Institute, University of Valencia.
  5. Holden, Tom, 2011. "Products, patents and productivity persistence: A DSGE model of endogenous growth," Dynare Working Papers 4, CEPREMAP.
  6. Gianfranco Giulioni, 2011. "The product innovation process and GDP dynamics," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 595-618, October.
  7. Chase Coleman & Kerk L. Phillips, 2014. "Business Cycle Persistence in a Model with Schumpeterian Growth and Uncorrelated Shocks," BYU Macroeconomics and Computational Laboratory Working Paper Series 2014-01, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  8. Ryo Horii, 2005. "Wants and Past Knowledge: Growth Cycles with Emerging Industries," Development and Comp Systems 0504007, EconWPA, revised 10 Jan 2006.
  9. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
  10. Tobias Kitlinski & Torsten Schmidt, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 0301, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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