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Can Uncorrelated Shocks Generate Aggregate Autocorrelation?: Business Cycle Persistence in a Model with Endogenous Growth and Fluctuations

  • Chase Coleman

    (Stern School, New York University)

  • Kerk Phillips

    (Department of Economics, Brigham Young University)

This paper considers a model which incorporates Schumpeterian type growth into an otherwise standard RBC model similar to the one in Phillips & Wrase (2006). We consider a model with three sources of shocks. The first is a standard productivity shock. The second is a set of Schumpeterian innovation shocks which are industry specific and correspond to the results of an applied R&D process. The final shock is an aggregate shock to the stock of basic knowledge and arrives as a Poisson process with an arrival rate influenced by economy-wide spending on R&D. We show that this model is capable of generating an observed TFP series that is autocorrelated, even when the standard productivity shock is pure white noise.

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File URL: https://docs.google.com/file/d/0B6KGaihAO5TJU2M0T0hsY203cms/edit
File Function: First version, 2013
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Paper provided by Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory in its series BYU Macroeconomics and Computational Laboratory Working Paper Series with number 2013-03.

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Length: 19 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:byu:byumcl:201303
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  1. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  3. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present, and Future," NBER Working Papers 11401, National Bureau of Economic Research, Inc.
  4. 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.
  5. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
  6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  7. Maliar, Lilia & Maliar, Serguei, 2004. "Endogenous Growth And Endogenous Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 8(05), pages 559-581, November.
  8. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  9. David Andolfatto & Glenn M. MacDonald, 1998. "Technology Diffusion and Aggregate Dynamics," Cahiers de recherche CREFE / CREFE Working Papers 58, CREFE, Université du Québec à Montréal.
  10. Jeff Wrase & Kerk Phillips, 2004. "Is Schumpeterian Creative Destruction a Plausible Source of Endogenous Real Business Cycle Shocks," Econometric Society 2004 Far Eastern Meetings 428, Econometric Society.
  11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  12. Phillips, Kerk L., 1993. "Quality ladders, growth, and R&D: an assessment from U.S. industry," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 239-273, June.
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