Intrinsic Business Cycles

Huw Lloyd-Ellis and Patrick Francois ()

No 624, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a model of "intrinsic" business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise even in the presence of reversible investment. We derive the implications for the cyclical evolution of both tangible (physical) and intangible (knowledge) capital. In particular, our framework is consistent with key aspects of the asynchronous relationship between fixed capital formation and the stockmarket at business cycle frequencies.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:624

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