Growth and Business Cycles

Larry Jones, Rodolfo Manuelli and Henry Siu

No 7633, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Our purpose in this paper is to present a class of convex endogenous growth models, and to analyze their performance in terms of both growth and business cycle criteria. The models we study have close analogs in the real business cycle literature. In fact, we interpret the exogenous growth rate of productivity as an endogenous growth rate of human capital. This perspective allows us to compare the strengths of both classes of models. In order to highlight the mechanism that gives endogenous growth models the ability to improve upon their exogenous growth relatives, we study models that are symmetric in terms of human and physical capital formation -- our two engines of growth. More precisely, we analyze models in which the technology used to produce human capital is identical to the technologies used to produce consumption and investment goods, and in which the technology shocks in the two sectors are perfectly correlated. We find that endogenous growth models can generate levels of labor volatility close to those observed in the data, as well as positively correlated growth rates of output. We also find that these models outperform a related exogenous growth version in most dimensions.

JEL-codes: D92 E32 (search for similar items in EconPapers)
Date: 2000-04
New Economics Papers: this item is included in nep-dev, nep-dge, nep-edu, nep-ino and nep-tid
Note: EFG
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Citations: View citations in EconPapers (31)

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Working Paper: Growth and business cycles (2000)
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