Animal Spirits and the Composition of Innovation in a Lab-Equipment R&D Model with Transition

Pedro Gil

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: We revisit the issue of self-fulfilling "waves of enthusiasm" as stationary rational expectations equilibria in tournament models of horizontal and vertical R&D. By considering a lab-equipment specification, the model predicts a positive effect of animal spirits on the balanced-growth-path (BGP) level of per-capita consumption without impacting on economic growth and on aggregate vertical R&D. However, transition is slower under "waves of enthusiasm", implying a longer period in which growth rates are higher than the BGP level. An economy that is subject to expectations shocks then converges at a time-varying speed. On average over time, transition is longer but less "painful" – i.e., with higher per-capita consumption levels – than otherwise.

Keywords: animal spirits; endogenous growth; horizontal and vertical R&D; time-varying speed of transition (search for similar items in EconPapers)
JEL-codes: D43 E32 L16 O41 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-09
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Related works:
Journal Article: Animal spirits and the composition of innovation in a lab-equipment R&D model with transition (2013)
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