Advanced Search
MyIDEAS: Login

Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility

Contents:

Author Info

  • K Blackburn
  • D Varvarigos
Registered author(s):

    Abstract

    We study the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends onboth deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. We derive a number of new results which challenge some of the results in the existing literature. First, we show that the optimal allocations of time to working and learning are both pro-cyclical. Second, we identify a preference parameter (other than the coefficient of relative risk aversion) that is potentially crucial for governing the effect of volatility on growth. Third, we demonstrate how the correlation between growth and volatility can be either positive or negative under each type of learning. Fourth, we also reveal how the sign of the correlation may be different for the two types of shock. Our results may be seen as providing further explanation for the lack of robust evidence on the relationship.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr74.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 74.

    as in new window
    Length: 21 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:man:cgbcrp:74

    Contact details of provider:
    Postal: Manchester M13 9PL
    Phone: (0)161 275 4868
    Fax: (0)161 275 4812
    Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    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.:
    as in new window
    1. Blackburn, Keith & Galindev, Ragchaasuren, 2003. "Growth, volatility and learning," Economics Letters, Elsevier, vol. 79(3), pages 417-421, June.
    2. Hopenhayn, Hugo A & Muniagurria, Maria E, 1996. "Policy Variability and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 611-25, October.
    3. Andres Arias & Gary D. Hansen & Lee E. Ohanian, 2006. "Why Have Business Cycle Fluctuations Become Less Volatile?," NBER Working Papers 12079, National Bureau of Economic Research, Inc.
    4. Kneller, Richard & Young, Garry, 2001. "Business Cycle Volatility, Uncertainty and Long-Run Growth," Manchester School, University of Manchester, vol. 69(5), pages 534-52, Special I.
    5. Steven P. Cassou & Kevin J. Lansing, 2004. "Tax reform with useful public expenditures," Working Papers in Applied Economic Theory 98-09, Federal Reserve Bank of San Francisco.
    6. Brunetti, Aymo, 1998. "Policy volatility and economic growth: A comparative, empirical analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 35-52, February.
    7. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
    8. Philippe Aghion & Gilles Saint-Paul, 1993. "Uncovering Some Causal Relationships between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey," NBER Working Papers 4603, National Bureau of Economic Research, Inc.
    9. Blackburn, Keith & Pelloni, Alessandra, 2004. "On the relationship between growth and volatility," Economics Letters, Elsevier, vol. 83(1), pages 123-127, April.
    10. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    11. Aghion, P. & Saint-Paul, G., 1991. "On The Virtue of Bad Times: An Analysis of the Interaction Between Economic Fluctuations and Productivity Growth," DELTA Working Papers 91-23, DELTA (Ecole normale supérieure).
    12. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    13. Hercowitz, Zvi & Sampson, Michael, 1991. "Output Growth, the Real Wage, and Employment Fluctuations," American Economic Review, American Economic Association, vol. 81(5), pages 1215-37, December.
    14. Saint-Paul, G., 1992. "Productivity growth and the Structure of the Business Cycle," DELTA Working Papers 92-16, DELTA (Ecole normale supérieure).
    15. Blackburn, Keith, 1999. "Can Stabilisation Policy Reduce Long-Run Growth?," Economic Journal, Royal Economic Society, vol. 109(452), pages 67-77, January.
    16. Joshua Aizenman & Nancy Marion, 1991. "Policy Uncertainty, Persistence and Growth," NBER Working Papers 3848, National Bureau of Economic Research, Inc.
    17. Martin, Philippe & Rogers, Carol Ann, 1995. "Long-Term Growth and Short-Term Economic Instability," CEPR Discussion Papers 1281, C.E.P.R. Discussion Papers.
    18. Steven P. Cassou & Kevin J. Lansing, 1996. "Welfare, stabilization, or growth: a comparison of different fiscal objectives," Working Paper 9614, Federal Reserve Bank of Cleveland.
    19. Imbs, Jean, 2002. "Why the Link Between Volatility and Growth is Both Positive and Negative," CEPR Discussion Papers 3561, C.E.P.R. Discussion Papers.
    20. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
    21. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
    22. K Blackburn & R Galindev, 2003. "Growth, volatility and learning," Centre for Growth and Business Cycle Research Discussion Paper Series 25, Economics, The Univeristy of Manchester.
    23. Canton, E.J.F., 1996. "Business Cycles in a Two-Sector Model of Endogenous Growth," Discussion Paper 1996-116, Tilburg University, Center for Economic Research.
    24. K Blackburn & R Galindev, 2003. "Growth, Volatility and Learning," The School of Economics Discussion Paper Series 0303, Economics, The University of Manchester.
    25. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    26. Saint-Paul, Gilles, 1997. "Business Cycles and Long-Run Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 145-53, Autumn.
    27. Plutarchos Sakellaris & Antonio Spilimbergo, 1999. "Business Cycles and Investment in Human Capital: International Evidence on Higher Education," Electronic Working Papers 99-009, University of Maryland, Department of Economics.
    28. William Easterly & Sergio Rebelo, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
    29. Dotsey, Michael & Sarte, Pierre Daniel, 2000. "Inflation uncertainty and growth in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 631-655, June.
    30. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
    31. Dellas, Harris & Sakellaris, Plutarchos, 1996. "On the cyclicality of schooling: Theory and evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    32. Caporale, Tony & McKiernan, Barbara, 1996. "The Relationship between Output Variability and Growth: Evidence from Post War UK Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 229-36, May.
    33. Collard, Fabrice, 1998. "Spectral and persistence properties of cyclical growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(3), pages 463-488, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Dimitrios Varvarigos, 2006. "On stabilisation policy: Are there conflicting implications for growth and welfare?," Discussion Paper Series 2006_19, Department of Economics, Loughborough University, revised Jul 2006.
    2. Ragchaasuren Galindev, 2008. "Uncertainty, Learning And Growth," Manchester School, University of Manchester, vol. 76(5), pages 539-548, 09.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:man:cgbcrp:74. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marianne Sensier).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.