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Animal Spirits meets Creative Destruction

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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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 130.

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Length: 45 pages
Date of creation: May 2001
Date of revision:
Handle: RePEc:cre:crefwp:130
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  11. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
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  18. Dellas, Harris & Sakellaris, Plutarchos, 1996. "On the cyclicality of schooling: Theory and evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  19. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  20. Pesaran, H.M. & Potter, S.M., 1995. "A Floor and Ceiling Model of U.S. Output," Cambridge Working Papers in Economics 9407, Faculty of Economics, University of Cambridge.
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