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A R&D Based Real Business Cycle Model

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  • Fung, Ka Wai Terence
  • Lau, Chi Keung Marco
  • Chan, Kwok Ho

Abstract

The New Keynesian Real Business Cycle model with staggered price adjustment is augmented with a R&D producing sector. Two sources of economic shocks are considered, namely random paritcipation (perturbances to value of alternative investment opportunities in another sector) and financial intermediation (shocks to the cost of raising capital in the financial intermediation market). We find that, when comparing to the baseline model, both models can explain pro-cyclical R&D spending. Additionally, the investment oversensitivity problem is corrected. However, only the financial intermediation model is consistent with the observed finding that volatility of R&D is larger than that of investment and output.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52571.

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Date of creation: 2013
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Handle: RePEc:pra:mprapa:52571

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Keywords: Endogenous growth model; real business cycle; asymmetric information; research and development;

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Cited by:
  1. Fung, Ka Wai Terence & Lau, Chi Keung Marco, 2013. "Financial Development, Econmic Growth and R&D Cyclical Movement," MPRA Paper 52567, University Library of Munich, Germany.

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