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Growth and Business Cycles

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  • Larry Jones
  • Rodolfo Manuelli
  • Henry Siu

Abstract

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7633.

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Date of creation: Apr 2000
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Handle: RePEc:nbr:nberwo:7633

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Cited by:
  1. Roseta-Palma, Catarina & Ferreira-Lopes, Alexandra & Sequeira, Tiago Neves, 2010. "Externalities in an endogenous growth model with social and natural capital," Ecological Economics, Elsevier, Elsevier, vol. 69(3), pages 603-612, January.
  2. Antonio Fatás, 2002. "The Effects of Bussiness Cycles on Growth," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 7, pages 191-220 Central Bank of Chile.
  3. Carmen Alvarez Albelo & Antonio Manresa, 2005. "Internal Learning By Doing And Economic Growth," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 30(2), pages 1-23, December.
  4. M. Fatih Guvenen, 2002. "Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution: A Macroeconomic Perspective," RCER Working Papers 491, University of Rochester - Center for Economic Research (RCER), revised Mar 2003.
  5. Anne Epaulard & Aude Pommeret, 2003. "Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 672-684, July.
  6. Max Gillman & Mark Harris & László Mátyás, 2002. "Inflation and Growth: Some Theory and Evidence," 10th International Conference on Panel Data, Berlin, July 5-6, 2002, International Conferences on Panel Data D5-1, International Conferences on Panel Data.
  7. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  8. repec:ebl:ecbull:v:5:y:2003:i:15:p:1-13 is not listed on IDEAS
  9. Blankenau, William F. & Cassou, Steven P., 2006. "Labor market trends with balanced growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(5), pages 807-842, May.
  10. Qiang Zhang, 2004. "Accounting for Human Capital and Weak Identification in Evaluating the Esptein-Zin-Weil Non-Expected Utility Model of Asset Pricing," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-289, CIRJE, Faculty of Economics, University of Tokyo.
  11. Matheron, Julien, 2003. "Is growth useful in RBC models?," Economic Modelling, Elsevier, Elsevier, vol. 20(3), pages 605-622, May.
  12. David R.F. Love & Jean-Francois Lamarche, 2004. "Anticipation and Real Business Cycles," Working Papers, Brock University, Department of Economics 0703, Brock University, Department of Economics, revised Sep 2007.
  13. Ramirez-Rondán Nelson, 2007. "Nonlinear Volatility Effects on Growth in Developing Economies," Working Papers, Banco Central de Reserva del Perú 2007-016, Banco Central de Reserva del Perú.
  14. Siu, Henry E., 2004. "Optimal fiscal and monetary policy with sticky prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(3), pages 575-607, April.
  15. Matheron, Julien & Maury, Tristan-Pierre & Tripier, Fabien, 2004. "Sources of growth and the spectral properties of the labor market search model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(9), pages 1903-1923, July.
  16. Gomes, Orlando, 2006. "Monetary policy and economic growth: combining short and long run macro analysis," MPRA Paper 2849, University Library of Munich, Germany.
  17. Ilaski Barañano & M. Paz Moral, 2003. "Output dynamics in an endogenous growth model," Economics Bulletin, AccessEcon, vol. 5(15), pages 1-13.
  18. Mark N. Harris & Max Gillman & László Mátyás, 2001. "The Negative Inflation-Growth Effect: Theory and Evidence," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2001n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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