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Growth, Cycles and Welfare: A Schumpeterian Perspective

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Author Info
Patrick Francois () (University of British Columbia)
Huw Lloyd-Ellis () (Queen's University)

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Abstract

We use a Schumpeterian model in which both the economy's growth rate and its volatility are endogenously determined to assess some welfare and policy implications associated with business cycle fluctuations. Because it features a higher average growth rate than its acyclical counterpart, steady-state welfare is higher along the cyclical equilibrium growth path of the model. We assess the impact of alternative stabilization policies designed to smooth cyclical fluctuations. Although, it is possible to significantly reduce the variance of output growth via simple policy measures, the welfare benefits are at best negligible and at worst completely offset by the resulting reduction long-term productivity growth.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_1090.pdf
File Format: application/pdf
File Function: First version 2006
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1090.

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Length: 26 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:qed:wpaper:1090

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Related research
Keywords: Endogenous cycles; Endogenous growth; Welfare; Stabilization policy;

Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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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.:
  1. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December. [Downloadable!] (restricted)
  2. Gadi Barlevy, 2004. "The Cost of Business Cycles and the Benefits of Stabilization: A Survey," NBER Working Papers 10926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Patrick Francois & Huw Lloyd-Ellis, 2009. "Schumpeterian Business Cycles with Pro-Cyclical R&D," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 567-591, October. [Downloadable!] (restricted)
  4. Francois, Patrick & Shi, Shouyong, 1999. "Innovation, Growth, and Welfare-Improving Cycles," Journal of Economic Theory, Elsevier, vol. 85(2), pages 226-257, April. [Downloadable!] (restricted)
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  6. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 169-98, April. [Downloadable!] (restricted)
  7. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "The Welfare Cost of Business Cycles Revisited: Finite Lives and Cyclical Variation in Idiosyncratic Risk," NBER Working Papers 8040, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Gadi Barlevy, 2004. "The Cost of Business Cycles Under Endogenous Growth," American Economic Review, American Economic Association, vol. 94(4), pages 964-990, September. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-30.

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