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On the stability of endogenous growth models: an evaluation of the agents’ response to output fluctuations

  • Gomes, Orlando

This paper presents three modified versions of the simple AK endogenous growth model. Such frameworks stress the role of consumers’ sentiment, the impact of fiscal policy and the effect of non-optimal investment decisions made by firms. In all the cases, today’s decisions take into consideration the economic performance of the previous period; in the first case, households react pro-cyclically to the output path; in the second case, a counter-cyclical fiscal policy is considered; and in the third case, firms adopt a pro-cyclical behaviour concerning investment choices. We study the stability properties of the three models and conclude that, on each one of them, a saddle-path stable equilibrium exists.

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File URL: https://mpra.ub.uni-muenchen.de/2891/1/MPRA_paper_2891.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2891.

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Date of creation: Apr 2007
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Handle: RePEc:pra:mprapa:2891
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  1. David B. Gordon & Eric M. Leeper, 2005. "Are Countercyclical Fiscal Policies Counterproductive?," NBER Working Papers 11869, National Bureau of Economic Research, Inc.
  2. Karl Taylor & Robert McNabb, 2007. "Business Cycles and the Role of Confidence: Evidence for Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 185-208, 04.
  3. Alberto Alesina & Guido Tabellini, 2005. "Why Is Fiscal Policy Often Procyclical?," Working Papers 297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  5. Perry, Guillermo, 2003. "Can fiscal rules help reduce macroeconomic volatility in the Latin America and Caribbean Region?," Policy Research Working Paper Series 3080, The World Bank.
  6. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
  7. Martin, Philippe & Rogers, Carol Ann, 1997. "Stabilization Policy, Learning-by-Doing, and Economic Growth," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 152-66, April.
  8. Budina, Nina & van Wijnbergen, Sweder, 1997. "Fiscal Policies in Eastern Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 13(2), pages 47-64, Summer.
  9. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
  10. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. António Afonso & Christiane Nickel & Philipp Rother, 2005. "Fiscal Consolidations in the Central and Eastern European Countries," Working Papers Department of Economics 2005/03, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  12. Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending?," MPRA Paper 902, University Library of Munich, Germany.
  13. Khoon Lek Goh, 2003. "Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?," Treasury Working Paper Series 03/22, New Zealand Treasury.
  14. U. Michael Bergman & Michael D. Bordo & Lars Jonung, 1998. "Historical evidence on business cycles: the international experience," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 65-119.
  15. Karsten Staehr, 2007. "Fiscal policies and business cycles in an enlarged euro area," Bank of Estonia Working Papers 2007-03, Bank of Estonia, revised 08 Mar 2007.
  16. Mark Doms & Norman J. Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
  17. Eckhard Hein & Achim Truger, 2006. "Monetary policy, macroeconomic policy mix and economic performance in the Euro area," IMK Working Paper 06-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  18. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2006. "An Evolutionary Model of Endogenous Business Cycles," Computational Economics, Society for Computational Economics, vol. 27(1), pages 3-34, February.
  19. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
  20. Jason Bram & Sydney Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 59-78.
  21. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  22. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  23. Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending? The Euro Area Case," MPRA Paper 911, University Library of Munich, Germany.
  24. Mackiewicz, Michał, 2008. "Determinants of Cyclicality of Fiscal Surpluses in The OECD Countries," MPRA Paper 16034, University Library of Munich, Germany.
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