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Schumpeterian growth and endogenous business cycles

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  • Kerk Phillips
  • Jeffrey M. Wrase

Abstract

This paper contains a dynamic general equilibrium model with an endogenous process for growth and business cycles driven partly by technological discovery and diffusion. The model integrates two branches of the literature. One is literature on Schumpeterian, or "quality ladder," models, in which growth is driven endogenously by attempts to innovate in order to capture monopoly rents and in which the focus is on low-frequency fluctuations in variables. The other is the real business cycle literature, in which the focus is on high-frequency fluctuations driven by exogenous productivity shocks. The model in this paper has Schumpeterian-style low-frequency fluctuations stemming from technological discovery in the form of random successes in endogenous research and development efforts. Diffusion of innovations in applied research into basic know-how, along with random shocks to productivity, drives high-frequency fluctuations. Properties of high- and low-frequency fluctuations in data d rawn from simulations of a parameterized version of the model are compared to like properties of data drawn from the postwar U.S. economy. The model accounts for key properties of actual data without heavy reliance on the exogenous, highly persistent, and volatile shocks to productivity typically used in real business cycle analysis.

Suggested Citation

  • Kerk Phillips & Jeffrey M. Wrase, 1999. "Schumpeterian growth and endogenous business cycles," Working Papers 99-20, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:99-20
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    References listed on IDEAS

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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    2. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
    3. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
    4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    5. Ozlu, Elvan, 1996. "Aggregate economic fluctuations in endogenous growth models," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 27-47.
    6. David Andolfatto & Glenn MacDonald, 1998. "Technology Diffusion and Aggregate Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 338-370, April.
    7. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    8. Schlagenhauf, Don E. & Wrase, Jeffrey M., 1995. "Liquidity and real activity in a simple open economy model," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 431-461, June.
    9. 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 1077-1091, December.
    10. Collard, Fabrice, 1998. "Spectral and persistence properties of cyclical growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(3), pages 463-488, November.
    11. Scott Freeman & Dong-Pyo Hong & Dan Peled, 1999. "Endogenous Cycles and Growth with Indivisible Technological Developments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 402-432, April.
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    Cited by:

    1. Pakko Michael R., 2005. "Changing Technology Trends, Transition Dynamics, and Growth Accounting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-42, December.

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    Keywords

    Business cycles;

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