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Business cycle fluctuations and learning-by-doing externalities in a one-sector model

  • d'Albis, Hippolyte
  • Augeraud-Véron, Emmanuelle
  • Venditti, Alain

We consider a one-sector Ramsey-type growth model with inelastic labor and learning-by-doing externalities based on cumulative gross investment (cumulative production of capital goods), which is assumed, in accordance with Arrow [5], to be a good index of experience. We prove that a slight memory effect characterizing the learning-by-doing process is enough to generate business cycle fluctuations through a Hopf bifurcation. This is obtained for reasonable parameter values, notably for both the elasticity of output with respect to the externality and the elasticity of intertemporal substitution. Hence, contrary to all the results available in the literature on aggregate models, we show that endogenous fluctuations are compatible with a low (in actual fact, zero) wage elasticity of the labor supply.

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 10.13.319.

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Date of creation: Jul 2010
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Handle: RePEc:ler:wpaper:10.13.319
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