 Volatility costs of R&DEuropean Economic Review, 2020, vol. 122, issue C Abstract: This paper incorporates endogenous growth into a New Keynesian DSGE framework to investigate the effects of R&D on economic volatility. It identifies a mechanism through which the cyclicality of R&D and its effects on volatility depend on the cyclicality of production. R&D activity becomes more procyclical, thereby amplifying economic volatility when labor is procyclical. The conclusions are reversed if labor is countercyclical. Alternative calibrations show that this link between R&D and production labor is weaker when R&D intensity, the spillover rate of innovation, and R&D adjustment costs are higher. In these cases, R&D tracks economic activity more closely which in turn magnifies economic volatility. The higher volatility has considerable welfare consequences and it implies that the steeper path of growth resulting from higher R&D activity comes at a price. Keywords: Research and development; Business cycles; Endogenous growth; DSGE (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:122:y:2020:i:c:s0014292119302260 DOI: 10.1016/j.euroecorev.2019.103365 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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