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Growth, Cycles and Welfare: A Schumpeterian Perspective

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  • Francois, Patrick
  • Lloyd-Ellis, Huw

Abstract

We use a Schumpeterian model in which both the economy's growth rate and its volatility are en- dogenously determined to assess some welfare and policy implications associated with business cycle ßuctuations. 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 ßuctuations. Although, it is possible to signiÞcantly 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.

Suggested Citation

  • Francois, Patrick & Lloyd-Ellis, Huw, 2006. "Growth, Cycles and Welfare: A Schumpeterian Perspective," Queen's Economics Department Working Papers 273566, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273566
    DOI: 10.22004/ag.econ.273566
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