Pareto Optimal Pro-cyclical Research and Development
AbstractWe develop a perfectly competitive endogenous growth model in which R&D is the engine of growth. Our model generates pro-cyclical R&D investment and labor input as a pareto optimal response to technology shocks to the consumption and equipment good sectors. The model also reproduces a variety of facts from the U.S. economy. Growth in R&D capital accounts for 75 percent of the growth rate of GNP and the decline in the relative price of equipment investment. Investment in each sector is pro-cyclical. Our results suggest that equipment shocks may be less important than the previous literature has found. After accounting for the endogenous response of R&D, equipment sector shocks only account for a small fraction of the variance in the growth rate of GNP.
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Length: 27 pages
Date of creation: Mar 2009
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-DGE-2009-04-05 (Dynamic General Equilibrium)
- NEP-INO-2009-04-05 (Innovation)
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