Endogenous Growth and Wave-Like Business Fluctuations

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Endogenous Growth and Wave-Like Business Fluctuations. / Bambi, Mauro; Gozzi, Fausto; Licandro, Omar .

In: Journal of Economic Theory, Vol. 154, 11.2014, p. 68-111.

Research output: Contribution to journalArticle

Harvard

Bambi, M, Gozzi, F & Licandro, O 2014, 'Endogenous Growth and Wave-Like Business Fluctuations', Journal of Economic Theory, vol. 154, pp. 68-111. https://doi.org/10.1016/j.jet.2014.08.004

APA

Bambi, M., Gozzi, F., & Licandro, O. (2014). Endogenous Growth and Wave-Like Business Fluctuations. Journal of Economic Theory, 154, 68-111. https://doi.org/10.1016/j.jet.2014.08.004

Vancouver

Bambi M, Gozzi F, Licandro O. Endogenous Growth and Wave-Like Business Fluctuations. Journal of Economic Theory. 2014 Nov;154:68-111. https://doi.org/10.1016/j.jet.2014.08.004

Author

Bambi, Mauro ; Gozzi, Fausto ; Licandro, Omar . / Endogenous Growth and Wave-Like Business Fluctuations. In: Journal of Economic Theory. 2014 ; Vol. 154. pp. 68-111.

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@article{5ad7187403464cf0991b30e90c0b43ea,
title = "Endogenous Growth and Wave-Like Business Fluctuations",
abstract = "Schumpeter stated that “wave-like fluctuations in business...are the form economic development takes in the era of capitalism.” This paper argues that observed long lags in the implementation of innovations make modern economies to behave consistently with Schumpeter{\textquoteright}s statement. Ina simple endogenous growth model with implementation delays, the paper finds that: First, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. Innovations arrive en masse, moving the economy to a boom; the associated increase in purchasing power all over the business sphere induces research activities to flourish again; but, innovations will take a while to develop; when the new wave of innovations is eventuallyimplemented, new products enter the market producing a second boom; a third will follow, then a forth and so on and so for. Second, this mechanism is quantitatively consistent with US aggregate data. Finally, a procyclical R&D subsidy rate moving around 10% and designed to half consumption fluctuations increases the growth rate from 2.4% to 3.4% with a 9.6% increase in welfare, 6.3% of the welfare gains due to consumption smoothing.",
author = "Mauro Bambi and Fausto Gozzi and Omar Licandro",
year = "2014",
month = nov,
doi = "10.1016/j.jet.2014.08.004",
language = "English",
volume = "154",
pages = "68--111",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",

}

RIS (suitable for import to EndNote) - Download

TY - JOUR

T1 - Endogenous Growth and Wave-Like Business Fluctuations

AU - Bambi, Mauro

AU - Gozzi, Fausto

AU - Licandro, Omar

PY - 2014/11

Y1 - 2014/11

N2 - Schumpeter stated that “wave-like fluctuations in business...are the form economic development takes in the era of capitalism.” This paper argues that observed long lags in the implementation of innovations make modern economies to behave consistently with Schumpeter’s statement. Ina simple endogenous growth model with implementation delays, the paper finds that: First, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. Innovations arrive en masse, moving the economy to a boom; the associated increase in purchasing power all over the business sphere induces research activities to flourish again; but, innovations will take a while to develop; when the new wave of innovations is eventuallyimplemented, new products enter the market producing a second boom; a third will follow, then a forth and so on and so for. Second, this mechanism is quantitatively consistent with US aggregate data. Finally, a procyclical R&D subsidy rate moving around 10% and designed to half consumption fluctuations increases the growth rate from 2.4% to 3.4% with a 9.6% increase in welfare, 6.3% of the welfare gains due to consumption smoothing.

AB - Schumpeter stated that “wave-like fluctuations in business...are the form economic development takes in the era of capitalism.” This paper argues that observed long lags in the implementation of innovations make modern economies to behave consistently with Schumpeter’s statement. Ina simple endogenous growth model with implementation delays, the paper finds that: First, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. Innovations arrive en masse, moving the economy to a boom; the associated increase in purchasing power all over the business sphere induces research activities to flourish again; but, innovations will take a while to develop; when the new wave of innovations is eventuallyimplemented, new products enter the market producing a second boom; a third will follow, then a forth and so on and so for. Second, this mechanism is quantitatively consistent with US aggregate data. Finally, a procyclical R&D subsidy rate moving around 10% and designed to half consumption fluctuations increases the growth rate from 2.4% to 3.4% with a 9.6% increase in welfare, 6.3% of the welfare gains due to consumption smoothing.

U2 - 10.1016/j.jet.2014.08.004

DO - 10.1016/j.jet.2014.08.004

M3 - Article

VL - 154

SP - 68

EP - 111

JO - Journal of Economic Theory

JF - Journal of Economic Theory

SN - 0022-0531

ER -