Creative destruction and business cycles

Raouf Boucekkine (), Marc Germain and Omar Licandro ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In a dynamic general equilibrium setup, this paper aims at providing a general framework for the analysis of the role of vintages and creative destruetion on business fluctuations. By stressing the forward-looking behavior of the optimal scrapping rule, we use a standard rational expectations argument to show) in the linear utility case, the time independence of the scrapping function. Secondly, we prove that equilibrium output shows a purely periodic behavior around an exponential growth trend, the pattern of the cycle being deterrnined by the pattern of initial conditions. The vintage capital model presented in this paper provides a new view on business fluctuations: historical conditions are at the basis of business fluctuations, in the sense that historically volatile or stable econornies will reproduce their own historical pattern in the future.

Keywords: Business; Cycle; Creative; Destruction; Periodic; Equilibria; Vintage; Capital (search for similar items in EconPapers)
Date: 1995-05
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:3907

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