Endogenous growth and wave-like business fluctuations
This paper argues that observed long lags in innovation implementation rationalize Schumpeter's statement that “wave-like fluctuations in business ... are the form economic development takes in the era of capitalism.” Adding implementation delays to an otherwise standard endogenous growth model...
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| Format: | Article |
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Elsevier
2014
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| Online Access: | https://eprints.nottingham.ac.uk/34424/ |
| _version_ | 1848794850384674816 |
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| author | Bambi, Mauro Gozzi, Fausto Licandro, Omar |
| author_facet | Bambi, Mauro Gozzi, Fausto Licandro, Omar |
| author_sort | Bambi, Mauro |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | This paper argues that observed long lags in innovation implementation rationalize Schumpeter's statement that “wave-like fluctuations in business ... are the form economic development takes in the era of capitalism.” Adding implementation delays to an otherwise standard endogenous growth model with expanding product variety, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. This mechanism is quantitatively consistent with the observed medium-term movements of US aggregate output. In this framework, an optimal allocation may be restored at equilibrium by the mean of a procyclical subsidy, needed to generate additional consumption smoothing. Finally, a procyclical R&D subsidy rate designed to half consumption fluctuations will increase the growth rate from 2.4% to 3.4% with a 9.6% (compensation equivalent) increase in welfare. |
| first_indexed | 2025-11-14T19:22:45Z |
| format | Article |
| id | nottingham-34424 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:22:45Z |
| publishDate | 2014 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-344242020-05-04T20:12:47Z https://eprints.nottingham.ac.uk/34424/ Endogenous growth and wave-like business fluctuations Bambi, Mauro Gozzi, Fausto Licandro, Omar This paper argues that observed long lags in innovation implementation rationalize Schumpeter's statement that “wave-like fluctuations in business ... are the form economic development takes in the era of capitalism.” Adding implementation delays to an otherwise standard endogenous growth model with expanding product variety, the equilibrium path admits a Hopf bifurcation where consumption, R&D and output permanently fluctuate. This mechanism is quantitatively consistent with the observed medium-term movements of US aggregate output. In this framework, an optimal allocation may be restored at equilibrium by the mean of a procyclical subsidy, needed to generate additional consumption smoothing. Finally, a procyclical R&D subsidy rate designed to half consumption fluctuations will increase the growth rate from 2.4% to 3.4% with a 9.6% (compensation equivalent) increase in welfare. Elsevier 2014-11 Article PeerReviewed Bambi, Mauro, Gozzi, Fausto and Licandro, Omar (2014) Endogenous growth and wave-like business fluctuations. Journal of Economic Theory, 154 . pp. 68-111. ISSN 0022-0531 Endogenous growth; Endogenous fluctuations; Innovation cycles; Time delays; Medium-term cycles; Hopf bifurcation http://dx.doi.org/10.1016/j.jet.2014.08.004 doi:10.1016/j.jet.2014.08.004 doi:10.1016/j.jet.2014.08.004 |
| spellingShingle | Endogenous growth; Endogenous fluctuations; Innovation cycles; Time delays; Medium-term cycles; Hopf bifurcation Bambi, Mauro Gozzi, Fausto Licandro, Omar Endogenous growth and wave-like business fluctuations |
| title | Endogenous growth and wave-like business fluctuations |
| title_full | Endogenous growth and wave-like business fluctuations |
| title_fullStr | Endogenous growth and wave-like business fluctuations |
| title_full_unstemmed | Endogenous growth and wave-like business fluctuations |
| title_short | Endogenous growth and wave-like business fluctuations |
| title_sort | endogenous growth and wave-like business fluctuations |
| topic | Endogenous growth; Endogenous fluctuations; Innovation cycles; Time delays; Medium-term cycles; Hopf bifurcation |
| url | https://eprints.nottingham.ac.uk/34424/ https://eprints.nottingham.ac.uk/34424/ https://eprints.nottingham.ac.uk/34424/ |