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Medium-frequency cycles and the remarkable near trend-stationarity of output

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  • Tom Holden

    (University of Surrey)

Abstract

This paper builds a dynamic stochastic general equilibrium (DSGE) model of endogenous growth that generates large medium-frequency cycles while robustly matching the near trend-stationary path of observed output. This requires a model in which standard business cycle shocks lead to highly persistent movements around trend, without significantly altering the trend itself. The robustness of the trend also requires that we eliminate the scale effects and knife edge assumptions that plague most growth models. In our model, when products go out of patent protection, the rush of entry into their production destroys incentives for process improvements. Consequently, old production processes are enshrined in industries producing non-protected products, and shocks that affect invention rates change the proportion of industries with advanced technologies. In an estimated version of our model, a financial-type shock to the stock of ideas emerges as the key driver of the medium frequency cycle.

Suggested Citation

  • Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:1412
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    File URL: https://repec.som.surrey.ac.uk/2012/DP14-12.pdf
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    Cited by:

    1. Sandro Lera & Didier Sornette, 2015. "Secular bipolar growth rate of the real US GDP per capita: implications for understanding past and future economic growth," Papers 1607.04136, arXiv.org.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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