Innovation and endogenous growth over business cycle with frictional labor markets

Marcin Bielecki

No 2017-26, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper proposes a microfounded model featuring frictional labor markets that generates procyclical R&D expenditures as a result of optimizing behavior by heterogeneous monopolistically competitive firms. This allows to show that business cycle fluctuations affect the aggregate endogenous growth rate of the economy. Consequently, transitory shocks leave lasting level effects. This mechanism is responsible for economically significant hysteresis effects that increase the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. I show that this has serious policy implications and creates ample space for policy intervention. I find that several static and countercyclical subsidy schemes are welfare improving.

Keywords: business cycles; firm dynamics; search and matching; innovation; endogenous growth (search for similar items in EconPapers)
JEL-codes: E32 J63 J64 O3 O40 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017
New Economics Papers: this item is included in nep-dge, nep-gro, nep-ino, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.wne.uw.edu.pl/index.php/download_file/3959/ First version, 2017 (application/pdf)

Related works:
Journal Article: Innovation and Endogenous Growth over the Business Cycle with Frictional Labor Markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2017-26

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