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A Simple Business-Cycle Model with Shumpeterian Features

Luis Costa and Huw Dixon

No E2007/28, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new 'prosperity plateau,' but contractionary shocks only affect the market power of mature industries.

Keywords: Entry; Hysteresis; Mark-up (search for similar items in EconPapers)
JEL-codes: E62 L13 L16 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2007-10
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-mic
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Related works:
Working Paper: A Simple Business-Cycle Model with Schumpeterian Features (2007) Downloads
Working Paper: A Simple Business-cycle Model with Schumpeterian Features (2005) Downloads
Working Paper: A Simple Business-Cycle Model with Schumpeterian Features Downloads
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