Our purpose in this paper is to present a class of convex endogenous growth models, and to analyze their performance in terms of both growth and business cycle criteria. The models we study have close analogs in the real business cycle literature. In fact, we interpret the exogenous growth rate of productivity as an endogenous growth rate of human capital. This perspective allows us to compare the strengths of both classes of models. In order to highlight the mechanism that gives endogenous growth models the ability to improve upon their exogenous growth relatives, we study models that are symmetric in terms of human and physical capital formation -- our two engines of growth. More precisely, we analyze models in which the technology used to produce human capital is identical to the technologies used to produce consumption and investment goods, and in which the technology shocks in the two sectors are perfectly correlated. We find that endogenous growth models can generate levels of labor volatility close to those observed in the data, as well as positively correlated growth rates of output. We also find that these models outperform a related exogenous growth version in most dimensions.
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7633.
Length: Date of creation: Apr 2000 Date of revision: Handle: RePEc:nbr:nberwo:7633
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Paper
Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2000.
"Growth and business cycles,"
Staff Report
271, Federal Reserve Bank of Minneapolis.
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Find related papers by JEL classification: D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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King, Robert G. & Rebelo, Sergio T., 1999.
"Resuscitating real business cycles,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007
Elsevier.
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