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On the stability of endogenous growth models: an evaluation of the agents’ response to output fluctuations

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  • Gomes, Orlando

Abstract

This paper presents three modified versions of the simple AK endogenous growth model. Such frameworks stress the role of consumers’ sentiment, the impact of fiscal policy and the effect of non-optimal investment decisions made by firms. In all the cases, today’s decisions take into consideration the economic performance of the previous period; in the first case, households react pro-cyclically to the output path; in the second case, a counter-cyclical fiscal policy is considered; and in the third case, firms adopt a pro-cyclical behaviour concerning investment choices. We study the stability properties of the three models and conclude that, on each one of them, a saddle-path stable equilibrium exists.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2891.

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Date of creation: Apr 2007
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Handle: RePEc:pra:mprapa:2891

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Keywords: Endogenous growth; Consumers’ sentiment; Fiscal policy; Investment; Output gap; Saddle-path stability;

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References

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  1. Eckhard Hein & Achim Truger, 2006. "Monetary policy, macroeconomic policy mix and economic performance in the Euro area," IMK Working Paper 06-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  2. Karsten Staehr, 2007. "Fiscal Policies and Business Cycles in an Enlarged Euro Area," CESifo Working Paper Series 1933, CESifo Group Munich.
  3. Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
  4. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 533-572, October.
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  6. Martin, Philippe & Rogers, Carol Ann, 1995. "Stabilization Policy, Learning by Doing, and Economic Growth," CEPR Discussion Papers 1130, C.E.P.R. Discussion Papers.
  7. Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy often Procyclical?," CESifo Working Paper Series 1556, CESifo Group Munich.
  8. Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending?," MPRA Paper 902, University Library of Munich, Germany.
  9. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Budina, Nina & van Wijnbergen, Sweder, 1997. "Fiscal Policies in Eastern Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 13(2), pages 47-64, Summer.
  11. Karl Taylor & Robert McNabb, 2007. "Business Cycles and the Role of Confidence: Evidence for Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 185-208, 04.
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  13. Khoon Lek Goh, 2003. "Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?," Treasury Working Paper Series 03/22, New Zealand Treasury.
  14. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  15. António Afonso & Christiane Nickel & Philipp C. Rother, 2006. "Fiscal Consolidations in the Central and Eastern European Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 402-421, July.
  16. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
  17. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2006. "An Evolutionary Model of Endogenous Business Cycles," Computational Economics, Society for Computational Economics, vol. 27(1), pages 3-34, February.
  18. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  19. David B. Gordon & Eric M. Leeper, 2005. "Are Countercyclical Fiscal Policies Counterproductive?," NBER Working Papers 11869, National Bureau of Economic Research, Inc.
  20. Mackiewicz, Michał, 2008. "Determinants of Cyclicality of Fiscal Surpluses in The OECD Countries," MPRA Paper 16034, University Library of Munich, Germany.
  21. Mark Doms & Norman Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
  22. Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending? The Euro Area Case," MPRA Paper 911, University Library of Munich, Germany.
  23. Perry, Guillermo, 2003. "Can fiscal rules help reduce macroeconomic volatility in the Latin America and Caribbean Region?," Policy Research Working Paper Series 3080, The World Bank.
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Cited by:
  1. Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan, vol. 39(3), pages 309-327.

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