Is Schumpeterian "Creative Destruction" a Plausible Source of Endogenous Real Business Cycle Shocks?

Kerk L. Phillips and Jeffrey Wrase
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Kerk L. Phillips: Brigham Young University

GE, Growth, Math methods from University Library of Munich, Germany

Abstract: This paper looks at the linkages between growth and business cycles by bringing together two strands of literature. We incorporate a quality ladders engine of growth into an otherwise standard real business cycle model. Our fundamental question is, can Schumpeter’s creative destruction process which leads to technological improvement over time also generate realistic business cycles? We use a standard real business cycle approach to solve for rules of motion in our state variables and proceed to generate artificial time series. We compare the statistical properties of these series with their historical counterparts to determine if the model mimics the real world closely. One advantage our approach has over the standard approach is that the trend component is included in our artificial series just as it is in the data. Hence, we are not tied to any particular filtering method when we compare simulations with the real world data. Quantitative analysis reveals the model is at least as capable of accounting for key features of fluctuations at various frequencies as a model with exogenous technology shocks. Moreover, the model can do so without relying as heavily on a highly persistent generating process for such exogenous shocks as standard models must.

Keywords: Schumpeter; growth; cycles; real business cycles (search for similar items in EconPapers)
JEL-codes: E32 O30 O40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2003-04-16
New Economics Papers: this item is included in nep-dge and nep-mac
Note: Type of Document - PDF; pages: 33
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Is Schumpeterian `creative destruction' a plausible source of endogenous real business cycle shocks? (2006)
Working Paper: Is Schumpeterian Creative Destruction a Plausible Source of Endogenous Real Business Cycle Shocks (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpge:0304001

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