Endogenous growth and wave-like business fluctuationsTools Bambi, Mauro, Gozzi, Fausto and Licandro, Omar (2014) Endogenous growth and wave-like business fluctuations. Journal of Economic Theory, 154 . pp. 68-111. ISSN 0022-0531 Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.jet.2014.08.004
AbstractThis paper argues that observed long lags in innovation implementation rationalize Schumpeter's statement that “wave-like fluctuations in business ... are the form economic development takes in the era of capitalism.” Adding implementation delays to an otherwise standard endogenous growth model with expanding product variety, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. This mechanism is quantitatively consistent with the observed medium-term movements of US aggregate output. In this framework, an optimal allocation may be restored at equilibrium by the mean of a procyclical subsidy, needed to generate additional consumption smoothing. Finally, a procyclical R&D subsidy rate designed to half consumption fluctuations will increase the growth rate from 2.4% to 3.4% with a 9.6% (compensation equivalent) increase in welfare.
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