ENDOGENOUS GROWTH AND HOUSEHOLD LEVERAGE

Emily Marshall, Hoang Nguyen and Paul Shea ()

Macroeconomic Dynamics, 2019, vol. 23, issue 5, 2089-2113

Abstract: We add households with heterogeneous discount factors and constrained credit to a research and development (R&D)-based endogenous growth model. Borrowers' access to credit has profound implications for growth. The direction and magnitude of this effect depend on preferences over labor supply. If labor supply is highly elastic and households do not smooth their labor supply between labor that produces output and R&D, annual growth decreases from 11.6% to approximately zero as the debt-to-capital ratio rises from 0 to 1.38. If households instead have a strong preference for smoothing their labor supply, then growth increases from 2.91% to 3.83% as the debt-to-capital ratio rises from 0 to 1.55. In both cases, less elastic labor supply weakens these effects. The results are similar if existing ideas do not affect the creation of new ideas. Now, when households do not smooth their labor supply, less debt results in faster growth, and productivity and output converge to much higher values.

Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:23:y:2019:i:05:p:2089-2113_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().