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Business cycle fluctuations and learning-by-doing externalities in a one-sector model

  • d’Albis, Hippolyte
  • Augeraud-Veron, Emmanuelle
  • Venditti, Alain

We consider a one-sector Ramsey-type growth model with inelastic labor and learning-by-doing externalities based on cumulative gross investment (cumulative production of capital goods), which is assumed, in accordance with Arrow (1962), to be a better index of experience than the average capital stock. We prove that a slight memory effect characterizing the learning-by-doing process is enough to generate business cycle fluctuations through a Hopf bifurcation leading to stable periodic orbits. This is obtained for reasonable parameter values, notably for both the amount of externalities and the elasticity of intertemporal substitution. Hence, contrary to all the results available in the literature on aggregate models, we show that endogenous fluctuations are compatible with a low (in actual fact, zero) wage elasticity of the labor supply.

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Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 48 (2012)
Issue (Month): 5 ()
Pages: 295-308

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Handle: RePEc:eee:mateco:v:48:y:2012:i:5:p:295-308
DOI: 10.1016/j.jmateco.2012.07.002
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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