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I - Q Cycles

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  • Patrick Francois

    (University of British Columbia)

  • Huw Lloyd- Ellis

    (Queen's University)

Abstract

We develop a model of 'intrinsic' business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise even in the presence of reversible investment. We derive the implications for the cyclical evolution of both tangible (physical) and intangible (knowledge) capital. In particular, our framework is consistent with key aspects of the somewhat puzzling relationship between fixed capital formation and the stockmarket at business cycle frequencies.

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File URL: http://128.118.178.162/eps/mac/papers/0511/0511023.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0511023.

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Length: 41 pages
Date of creation: 22 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0511023

Note: Type of Document - pdf; pages: 41
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Web page: http://128.118.178.162

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Keywords: Tobin's Q; fixed capital formation; intangible investment; cycles and growth;

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References

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  1. Lawrence J. Christiano & Robert J. Vigfusson, 2001. "Maximum likelihood in the frequency domain: the importance of time-to-plan," Working Paper 0106, Federal Reserve Bank of Cleveland.
  2. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
  3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  4. Scott Freeman & Dong-Pyo Hong & Dan Peled, 1999. "Endogenous Cycles and Growth with Indivisible Technological Developments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 402-432, April.
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  6. Patrick Francois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Papers 1039, Queen's University, Department of Economics.
  7. Chol-Won Li, . "Science, Diminishing Returns and Long Waves," Working Papers 9715, Business School - Economics, University of Glasgow.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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  10. Gadi Barlevy, 2004. "The Cost of Business Cycles Under Endogenous Growth," American Economic Review, American Economic Association, vol. 94(4), pages 964-990, September.
  11. Boyan Jovanovic & Saul Lach, 1995. "Product innovation and the business cycle," Finance and Economics Discussion Series 95-46, Board of Governors of the Federal Reserve System (U.S.).
  12. Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
  13. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
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  15. Fumio Hayashi & Tohru Inoue, 1989. "The relationship of firm growth and Q with multiple capital goods: theory and evidence from panel data on Japanese firms," Discussion Paper / Institute for Empirical Macroeconomics 13, Federal Reserve Bank of Minneapolis.
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  18. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
  19. Kiminori Matsuyama, 1999. "Growing Through Cycles in an Infinitely -lived Agent Economy," Discussion Papers 1280, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Patrick Francois & Huw Lloyd-Ellis, 2001. "Animal Spirits meets Creative Destruction," Cahiers de recherche CREFE / CREFE Working Papers 130, CREFE, Université du Québec à Montréal.
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  23. repec:fth:simfra:95-08 is not listed on IDEAS
  24. Wen, Yi, 1998. "Investment cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1139-1165, May.
  25. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
  26. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  27. Walde, Klaus, 2002. "The economic determinants of technology shocks in a real business cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 1-28, November.
  28. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  29. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
  30. Patrick Francois & Huw Lloyd-Ellis, 2003. "Animal Spirits Through Creative Destruction," American Economic Review, American Economic Association, vol. 93(3), pages 530-550, June.
  31. repec:fth:waterl:9503 is not listed on IDEAS
  32. Lawrence J. Christiano & Richard M. Todd, 1996. "Time to plan and aggregate fluctuations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-27.
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