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Schumpeterian Foundations of Real Business Cycles

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  • Galo Nuño Barrau

    ()
    (Research Department, Banco Bilbao Vizcaya Argentaria)

Abstract

Technology shocks are at the core of real business cycle models. Although tra- ditionaly described as exogenous, technology shocks can be the result of the endoge- nous decisions by economic agents under uncertainty. To demostrate it, in this paper I develop a dynamic stochastic general equilibrium model that incorporates Schum- peterian endogenous growth features that affect the convergence to the steady-state. In this model, technology advances are due to the introduction of vertical innovations by entrepreneurs who try to become monopolists in different economic sectors. En- trepreneurs? ventures are ?nanced by banks. The model is solved and estimated by bayesian methods for the United States economy to compute the value of some of its structural parameters. Results show that for a country close to the technology fron- tier, the presented innovation mechanism is roughly equivalent in terms of volatilies, correlations and impulse responses to technology shocks in real business cycle mod- els. Therefore, the behavior of the productivity can be due not only to technology considerations but also to ?nancial and entrepreneurial reasons.

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File URL: http://iei.uv.es/docs/wp_internos/RePEc/pdf/iei_0805.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by International Economics Institute, University of Valencia in its series Working Papers with number 0805.

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Length: 25 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:iei:wpaper:0805

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  1. Diego Comin & Sunil Mulani, 2007. "A theory of growth and volatility at the aggregate and firm level," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  2. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  3. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  4. Scarpetta, Stefano & Fally, Thibault & Aghion, Philippe, 2007. "Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms," Scholarly Articles 4554208, Harvard University Department of Economics.
  5. Howitt, Peter & Mayer-Foulkes, David & Aghion, Philippe, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," Scholarly Articles 4481509, Harvard University Department of Economics.
  6. Kerk L. Phillips & Jeff Wrase, 2003. "Is Schumpeterian "Creative Destruction" a Plausible Source of Endogenous Real Business Cycle Shocks?," GE, Growth, Math methods 0304001, EconWPA.
  7. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  8. Peter Howitt, 2000. "Endogenous Growth and Cross-Country Income Differences," American Economic Review, American Economic Association, vol. 90(4), pages 829-846, September.
  9. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  10. Francisco J. Buera & Yongseok Shin, 2006. "Financial Frictions and the Persistence of History," 2006 Meeting Papers 792, Society for Economic Dynamics.
  11. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  12. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December.
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Cited by:
  1. Giulioni, Gianfranco, 2010. "Endogenous recessions: The creative destruction effect of final product novelty," Economic Modelling, Elsevier, vol. 27(2), pages 516-522, March.

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