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On the Relationship Between Growth and Volatility in Learning-by-Doing Economies

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  • K Blackburn
  • A Pelloni

Abstract

This paper contains an investigation into the potential linkages between the short-run (cyclical) and long-run (secular) movements in economic activity. The investigation is based on an analytically solvable stochastic monetary growth model in which learning-by-doing accounts for endogenous technological change. The dynamic general equilibrium of this model implies that both the first and second moments of disturbances have first-order effects on both the first and second moments of variables. Given this, it is shown that the correlation between the mean and variance of output growth depends fundamentally on two main factors - the source of stochastic fluctuations (real shocks or nominal shocks) and the functioning of the labour market (wage flexibility or wage rigidity). These results contradict certain common presumptions and may help to explain certain empirical evidence.

Suggested Citation

  • K Blackburn & A Pelloni, 2001. "On the Relationship Between Growth and Volatility in Learning-by-Doing Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 01, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:01
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr1.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jeffrey Edwards & Benhua Yang, 2009. "An empirical refinement of the relationship between growth and volatility," Applied Economics, Taylor & Francis Journals, vol. 41(11), pages 1331-1343.
    2. Paul A. de Hek, 2004. "On Growth and Fluctuations: The Option to Adobt New Technology," DEGIT Conference Papers c009_017, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Paul A. de Hek, 2005. "Uncertain Technological Change under Capital Mobility," Tinbergen Institute Discussion Papers 05-033/2, Tinbergen Institute.
    4. Joseph P. Byrne & E. Philip Davis, 2005. "Investment and Uncertainty in the G7," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 1-32, April.
    5. Paul A. de Hek, 2002. "Endogenous Technological Change under Uncertainty," Tinbergen Institute Discussion Papers 02-047/2, Tinbergen Institute, revised 08 Nov 2002.

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