Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility

Keith Blackburn and D Varvarigos

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

Abstract: We study the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends onboth deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. We derive a number of new results which challenge some of the results in the existing literature. First, we show that the optimal allocations of time to working and learning are both pro-cyclical. Second, we identify a preference parameter (other than the coefficient of relative risk aversion) that is potentially crucial for governing the effect of volatility on growth. Third, we demonstrate how the correlation between growth and volatility can be either positive or negative under each type of learning. Fourth, we also reveal how the sign of the correlation may be different for the two types of shock. Our results may be seen as providing further explanation for the lack of robust evidence on the relationship.

Pages: 21 pages
Date: 2006
New Economics Papers: this item is included in nep-hrm
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Citations: View citations in EconPapers (3)

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Working Paper: Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:74

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