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How much Keynes and how much Schumpeter? An Estimated Macromodel of the US Economy

Cozzi, Guido and Pataracchia, Beatrice and Ratto, Marco and Pfeiffer, Philipp (2017): How much Keynes and how much Schumpeter? An Estimated Macromodel of the US Economy.

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Abstract

The macroeconomic experience of the last decade stressed the importance of jointly studying the growth and business cycle fluctuations behavior of the economy. To analyze this issue, we embed a model of Schumpeterian growth into an estimated medium-scale DSGE model. Results from a Bayesian estimation suggest that Investment risk premia are a key driver of the slump following the Great Recession. Endogenous innovation dynamics amplifies financial crises and helps explain the slow recovery. Moreover, financial conditions also account for a substantial share of R&D Investment dynamics.

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