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Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility

  • K Blackburn
  • D Varvarigos
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    We study the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends onboth deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. We derive a number of new results which challenge some of the results in the existing literature. First, we show that the optimal allocations of time to working and learning are both pro-cyclical. Second, we identify a preference parameter (other than the coefficient of relative risk aversion) that is potentially crucial for governing the effect of volatility on growth. Third, we demonstrate how the correlation between growth and volatility can be either positive or negative under each type of learning. Fourth, we also reveal how the sign of the correlation may be different for the two types of shock. Our results may be seen as providing further explanation for the lack of robust evidence on the relationship.

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    File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr74.pdf
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    Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 74.

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    Length: 21 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:man:cgbcrp:74
    Contact details of provider: Postal: Manchester M13 9PL
    Phone: (0)161 275 4868
    Fax: (0)161 275 4812
    Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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    19. Smith, R Todd, 1996. "Cyclical Uncertainty, Precautionary Saving and Economic Growth," Economica, London School of Economics and Political Science, vol. 63(251), pages 477-94, August.
    20. Blackburn, Keith, 1999. "Can Stabilisation Policy Reduce Long-Run Growth?," Economic Journal, Royal Economic Society, vol. 109(452), pages 67-77, January.
    21. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2005. "Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 805-828, October.
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    31. K Blackburn & R Galindev, 2003. "Growth, volatility and learning," Centre for Growth and Business Cycle Research Discussion Paper Series 25, Economics, The Univeristy of Manchester.
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