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I - Q Cycles

Listed author(s):
  • Patrick Francois

    ()

    (University of British Columbia)

  • Huw Lloyd-Ellis

    ()

    (Queen's University)

We develop a model of "intrinsic" business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise even in the presence of reversible investment. We derive the implications for the cyclical evolution of both tangible (physical) and intangible (knowledge) capital. In particular, our framework is consistent with key aspects of the somewhat puzzling relationship between fixed capital formation and the stockmarket at business cycle frequencies.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1040.pdf
File Function: First version 2005
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1040.

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Length: 41 pages
Date of creation: Oct 2005
Handle: RePEc:qed:wpaper:1040
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Web page: http://qed.econ.queensu.ca/
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References listed on IDEAS
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  1. Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
  2. 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.
  3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  5. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," NBER Working Papers 10625, National Bureau of Economic Research, Inc.
  6. Li, Chol-Won, 2001. "Science, Diminishing Returns and Long Waves," Manchester School, University of Manchester, vol. 69(5), pages 553-573, Special I.
  7. Matsuyama, Kiminori, 2001. "Growing through Cycles in an Infinitely Lived Agent Economy," Journal of Economic Theory, Elsevier, vol. 100(2), pages 220-234, October.
  8. Walde, Klaus, 2002. "The economic determinants of technology shocks in a real business cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 1-28, November.
  9. Lawrence J. Christiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 56-83.
  10. Lawrence J. Christiano & Robert J. Vigfusson, 2001. "Maximum likelihood in the frequency domain: the importance of time-to-plan," Working Paper 0106, Federal Reserve Bank of Cleveland.
  11. Bart Hobijn & Boyan Jovanovic, 2001. "The Information-Technology Revolution and the Stock Market: Evidence," American Economic Review, American Economic Association, vol. 91(5), pages 1203-1220, December.
  12. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
  13. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
  14. Robert E. Hall, 2000. "The stock market and capital accumulation," Proceedings, Federal Reserve Bank of San Francisco, issue Apr, pages -.
  15. Wen, Yi, 1998. "Investment cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1139-1165, May.
  16. Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  17. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  18. Gadi Barlevy, 2003. "The cost of business cycles under endogenous growth," Working Paper Series WP-03-13, Federal Reserve Bank of Chicago.
  19. David Andolfatto & Glenn M. MacDonald, 1998. "Technology Diffusion and Aggregate Dynamics," Cahiers de recherche CREFE / CREFE Working Papers 58, CREFE, Université du Québec à Montréal.
  20. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
  21. Jovanovic, Boyan & Lach, Saul, 1997. "Product Innovation and the Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 3-22, February.
  22. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September.
  23. Fumio Hayashi & Tohru Inoue, 1989. "The relationship of firm growth and Q with multiple capital goods: theory and evidence from panel data on Japanese firms," Discussion Paper / Institute for Empirical Macroeconomics 13, Federal Reserve Bank of Minneapolis.
  24. repec:fth:simfra:95-08 is not listed on IDEAS
  25. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
  26. Lawrence J. Christiano & Richard M. Todd, 1996. "Time to plan and aggregate fluctuations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-27.
  27. Douglas Gale, 1996. "Delay and Cycles," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 169-198.
  28. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
  29. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
  30. Patrick Francois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Papers 1039, Queen's University, Department of Economics.
  31. Patrick Francois & Huw Lloyd-Ellis, 2003. "Animal Spirits Through Creative Destruction," American Economic Review, American Economic Association, vol. 93(3), pages 530-550, June.
  32. repec:fth:waterl:9503 is not listed on IDEAS
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