On the Relationship Between Growth and Volatility in Learning-by-Doing Economies

Keith Blackburn and Alessandra Pelloni

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: This paper contains an investigation into the potential linkages between the short-run (cyclical) and long-run (secular) movements in economic activity. The investigation is based on an analytically solvable stochastic monetary growth model in which learning-by-doing accounts for endogenous technological change. The dynamic general equilibrium of this model implies that both the first and second moments of disturbances have first-order effects on both the first and second moments of variables. Given this, it is shown that the correlation between the mean and variance of output growth depends fundamentally on two main factors - the source of stochastic fluctuations (real shocks or nominal shocks) and the functioning of the labour market (wage flexibility or wage rigidity). These results contradict certain common presumptions and may help to explain certain empirical evidence.

Pages: 23 pages
Date: 2001
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:01

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