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Output dynamics in an endogenous growth model

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  • Barañano Mentxaka, Ilaski
  • Moral Zuazo, María Paz

Abstract

The aim of this paper is to analyze whether endogenous growth RBC models are consistent with two stylized facts about U.S. output dynamics. First, GNP growth is positively correlated in the short run and it has a weak negative autocorrelation over longer horizons. Second, GNP appears to have an important trend-reverting component that has a hump-shaped MA representation. In particular, this article considers a stochastic version of Lucas' (1988) model in the absence of externalities in discrete time with two modifications: agents derive utility not only from consumption but also from leisure and labor adjustment costs are included. Results reveal that combining the endogenous character of the engine of growth with labor adjustment costs may help solve the Cogley-Nason (1995) puzzle since it provides a stronger propagation mechanism which, in turn, improves the model's ability to generate realistic output dynamics.

Suggested Citation

  • Barañano Mentxaka, Ilaski & Moral Zuazo, María Paz, 2003. "Output dynamics in an endogenous growth model," BILTOKI 1134-8984, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    • Handle: RePEc:ehu:biltok:5715
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    References listed on IDEAS

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    1. Ozlu, Elvan, 1996. "Aggregate economic fluctuations in endogenous growth models," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 27-47.
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    7. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
    8. Matheron, Julien, 2003. "Is growth useful in RBC models?," Economic Modelling, Elsevier, vol. 20(3), pages 605-622, May.
    9. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
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    Cited by:

    1. Barañano Mentxaka, Ilaski & Moral Zuazo, María Paz, 2007. "Consumption-Leisure Trade-offs and Persistency in Business Cycles," BILTOKI 1134-8984, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).

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