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I - Q Cycles

  • 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://econwpa.repec.org/eps/mac/papers/0511/0511023.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0511023.

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Length: 41 pages
Date of creation: 22 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0511023
Note: Type of Document - pdf; pages: 41
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  2. Robert E. Hall, 1999. "The Stock Market and Capital Accumulation," NBER Working Papers 7180, National Bureau of Economic Research, Inc.
  3. David Andolfatto & Glenn MacDonald, 1998. "Technology Diffusion and Aggregate Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 338-370, April.
  4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  5. Chol-Won Li, . "Science, Diminishing Returns and Long Waves," Working Papers 9715, Business School - Economics, University of Glasgow.
  6. Boyan Jovanovic & Saul Lach, 1995. "Product innovation and the business cycle," Finance and Economics Discussion Series 95-46, Board of Governors of the Federal Reserve System (U.S.).
  7. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  8. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September.
  9. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Patrick Francois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Papers 1039, Queen's University, Department of Economics.
  11. Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  12. 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.
  13. Gadi Barlevy, 2004. "The Cost of Business Cycles Under Endogenous Growth," American Economic Review, American Economic Association, vol. 94(4), pages 964-990, September.
  14. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  15. Lawrence J. Cristiano & 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.
  16. 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.
  17. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
  18. 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.
  19. Kiminori Matsuyama, 1999. "Growing Through Cycles in an Infinitely -lived Agent Economy," Discussion Papers 1280, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," NBER Working Papers 10625, National Bureau of Economic Research, Inc.
  21. Christiano, Lawrence J. & Vigfusson, Robert J., 2003. "Maximum likelihood in the frequency domain: the importance of time-to-plan," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 789-815, May.
  22. 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.
  23. Patrick Francois & Huw Lloyd-Ellis, 2003. "Animal Spirits Through Creative Destruction," American Economic Review, American Economic Association, vol. 93(3), pages 530-550, June.
  24. Wen, Yi, 1998. "Investment cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1139-1165, May.
  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. 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.
  27. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
  28. 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.
  29. 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.
  30. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
  31. 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.
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