This paper presents a computable general equilibrium model of endogenous (stochastic) growth and cycles that can account for two key features of the aggregate data: balanced growth in the long-run and business cycles in the short-run. The model is built on Schumpeter's idea that economic development is the consequence of the periodic arrival of innovations. There is growth because each subsequent innovation leads to a permanent improvement in the production technology. Cycles arise because innovations trigger a re-allocation of resources between production and R&D. The quantitative implications of the calibrated version of our model are very similar to those of Kydland and Prescott's (1982) model. Moreover, our model can correct two serious shortcomings of RBC models: it can account for the persistence in output growth and the asymmetry of growth within the business cycle.
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number
2003-14.
Find related papers by JEL classification: E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
References listed on IDEAS 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.:
Ellen R. McGrattan & Edward C. Prescott, 2000.
"Is the stock market overvalued?,"
Quarterly Review,
Federal Reserve Bank of Minneapolis, issue Fall, pages 20-40.
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Jovanovic, Boyan & Lach, Saul, 1997.
"Product Innovation and the Business Cycle,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 3-22, February.
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