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Animal Spirits meets Creative Destruction

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We show how a Schumpeterian process of creative destruction can induce rational, herd-behavior by entrepreneurs across diverse sectors of the economy that may look like it is fuelled by ``animal spirits''. Consequently, a multi-sector economy, in which sector-specific, productivity improvements are made by independent, profit-seeking entrepreneurs, can exhibit regular booms, slowdowns and downturns as an inherent part of the long-run growth process. The cyclical equilibrium that we study has a higher average growth rate but lower welfare than the corresponding acyclical one. We find that the cycles generated by our model exhibit several features of actual business cycles, and that across cycling economies, a negative relationship emerges between volatility and growth. Nous montrons comment un processus de destruction créatrice Schumpeterien peut entraîner un comportement rationnel de masse ('moutonnier') des entrepreneurs à travers les différents secteurs de l'économie, un comportement qui peut apparaître comme provenant d'effets non fondamentaux ('esprits animaliers'). En conséquence, une économie avec des secteurs multiples dans laquelle les améliorations de productivité sont apportées par des entrepreneurs in-dépendants cherchant un profit peut être caractérisée par des expansions, des ralentissements et des baisses de façon régulière tout en étant une partie intégrante du processus de croissance à long terme. L'équilibre cyclique que nous étudions possède certes un taux de croissance moyen supérieur mais également un niveau de bien-être inférieur par rapport à l'équilibre acyclique correspondant. Nous trouvons que les cycles générés par notre modèle présentent plusieurs caractéristiques des cycles économiques observés dans les données et qu'une relation négative émerge entre la volatilité et la croissance parmis les économies caractérisées par des cycles.

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  • 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.
  • Handle: RePEc:cre:crefwp:130
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    Cited by:

    1. Posch, Olaf & Wälde, Klaus, 2005. "Natural volatility, welfare and taxation," W.E.P. - Würzburg Economic Papers 57, University of Würzburg, Chair for Monetary Policy and International Economics.
    2. Klaus Wälde, 2005. "Endogenous Growth Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 867-894, August.
    3. Romain Rancière & Aaron Tornell & Frank Westermann, 2002. "Crises and growth: A re-evaluation," Economics Working Papers 852, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2003.
    4. Aaron Tornell, 2003. "Crises and Growth: A Re-evaluation (September 2003)," UCLA Economics Online Papers 264, UCLA Department of Economics.
    5. Patrick Francois & Huw Lloyd- Ellis, 2005. "I - Q Cycles," Macroeconomics 0511023, EconWPA.
    6. Taiji Harashima, 2005. "The Pro-cyclical R&D Puzzle: Technology Shocks and Pro-cyclical R&D Expenditure," Macroeconomics 0507012, EconWPA, revised 12 Jul 2005.
    7. Klaus Wälde, 2003. "Endogenous Business Cycles and Growth," CESifo Working Paper Series 920, CESifo Group Munich.
    8. Boyan Jovanovic, 2006. "Asymmetric Cycles," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 145-162.
    9. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    10. Philippe Aghion & Jeremy C. Stein, 2004. "Growth vs. Margins: Destabilizing Consequences of Giving the Stock Market What it Wants," NBER Working Papers 10999, National Bureau of Economic Research, Inc.
    11. Patrick Francois & Huw Lloyd-Ellis, 2004. "Investment Cycles," Macroeconomics 0405005, EconWPA, revised 05 May 2004.
    12. Jakub Growiec & Ingmar Schumacher, 2013. "Technological opportunity, long-run growth, and convergence," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 323-351, April.
    13. Gadi Barlevy, 2004. "On the timing of innovation in stochastic Schumpeterian growth models," Working Paper Series WP-04-11, Federal Reserve Bank of Chicago.
    14. Patrick Francois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Papers 1039, Queen's University, Department of Economics.
    15. John Foster, 2011. "Evolutionary macroeconomics: a research agenda," Journal of Evolutionary Economics, Springer, vol. 21(1), pages 5-28, February.

    More about this item

    Keywords

    Entrepreneurship; innovation; endogenous business cycles; endogenous growth;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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