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Growth, Cycles and Welfare: A Schumpeterian Perspective

  • Patrick Francois

    ()

    (University of British Columbia)

  • Huw Lloyd-Ellis

    ()

    (Queen's University)

We use a Schumpeterian model in which both the economy's growth rate and its volatility are endogenously determined to assess some welfare and policy implications associated with business cycle fluctuations. Because it features a higher average growth rate than its acyclical counterpart, steady-state welfare is higher along the cyclical equilibrium growth path of the model. We assess the impact of alternative stabilization policies designed to smooth cyclical fluctuations. Although, it is possible to significantly reduce the variance of output growth via simple policy measures, the welfare benefits are at best negligible and at worst completely offset by the resulting reduction long-term productivity growth.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1090.pdf
File Function: First version 2006
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1090.

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Length: 26 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:qed:wpaper:1090
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  1. Patrick Francois & Huw Lloyd-Ellis, 2009. "Schumpeterian Business Cycles with Pro-Cyclical R&D," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 567-591, October.
  2. Gadi Barlevy, 2003. "The cost of business cycles under endogenous growth," Working Paper Series WP-03-13, Federal Reserve Bank of Chicago.
  3. Francois, Patrick & Shi, Shouyong, 1999. "Innovation, Growth, and Welfare-Improving Cycles," Journal of Economic Theory, Elsevier, vol. 85(2), pages 226-257, April.
  4. Gadi Barlevy, 2004. "The Cost of Business Cycles and the Benefits of Stabilization: A Survey," NBER Working Papers 10926, National Bureau of Economic Research, Inc.
  5. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  7. Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 2001. "The welfare cost of business cycles revisited: Finite lives and cyclical variation in idiosyncratic risk," European Economic Review, Elsevier, vol. 45(7), pages 1311-1339.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  9. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
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