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I - Q Cycles

Author

Listed:
  • Patrick Francois

    (University of British Columbia)

  • Huw Lloyd- Ellis

    (Queen's University)

Abstract

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.

Suggested Citation

  • Patrick Francois & Huw Lloyd- Ellis, 2005. "I - Q Cycles," Macroeconomics 0511023, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0511023
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    References listed on IDEAS

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    Cited by:

    1. Patrick Fracois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Paper 1039, Economics Department, Queen's University.

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    More about this item

    Keywords

    Tobin's Q; fixed capital formation; intangible investment; cycles and growth;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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