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Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties

  • Larry E. Jones

    (University of Minnesota)

  • Rodolfo E. Manuelli

    (University of Wisconsin)

  • Henry E. Siu

    (University of British Columbia)

Using ideas from the endogenous growth literature, we present a model of the endogenous determination of productivity growth based on individual worker decisions about human capital investment. We calibrate a version of the model to match long run growth facts from the US and study the business cycle properties of this model. This approach offers improvements along several dimensions over standard exogenous growth methodologies. Most importantly, our stochastic endogenous growth model generates much greater serial correlation in output growth and labor supply volatility relative to its real business cycle counterpart. We conclude that using the extra discipline of reproducing the trend productivity growth features of the data endogenously constitutes an important missing component from the real business cycle approach. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.05.005
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 4 (October)
Pages: 805-828

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Handle: RePEc:red:issued:v:8:y:2005:i:4:p:805-828
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