Schumpeterian Foundations of Real Business Cycles

Nuno Barrau, Galo (2008): Schumpeterian Foundations of Real Business Cycles.

Abstract

In this paper I propose a dynamic stochastic general quilibrium model that includes many of Schumpeter’s ideas about growth and business cycles. In this model, technology advances are due to the introduction of vertical innovations by entrepreneurs who are funded by banks. The model is solved and estimated by bayesian methods for the U.S. economy to compute the value of some of its structural parameters. Results show that the presented innovation mechanism is roughly equivalent in terms of volatilies, correlations and impulse responses to the technology shocks in real business cycle models. Notwithstanding, the model differs from traditional RBC models as it incorporates technology catch-up features that affect the convergence to the steady-state.

• Item Type: MPRA Paper
• Language: English
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27 - Forecasting and Simulation: Models and Applications; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Aghion, Philippe, Fally, Thibault and Scarpetta, Stefano, (2007) "Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms," Economic Policy, 22 (52), pp. 731-779.

Aghion, Philippe and Peter Howitt (1992), "A Model of Growth through Creative Destruction," Econometrica, 60(2) , 323-351.

Aghion, Philippe, and Peter Howitt (1998), Endogenous Growth Theory. (Cambridge, MA: MIT Press).

Aghion, Philippe, Peter Howitt and David Mayer-Foulkes (2004), "The Effect of Financial Development on Convergence: Theory and Evidence ," NBER Working Paper W10358 .

Barro, Robert J., and Xavier Sala-i-Martin (2004), Economic Growth. (Cambridge, MA:MIT Press).

Bernanke, Ben S., Mark Gertler and Simon Gilchrist (1998), "The Financial Accelerator in a Quantitative Business Cycle Framework" NBER Working Paper W6455.

Bernanke, Ben S. and Martin L. Parkinson, (1991). "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, 99(3), pp. 439-59.

Blackburn, Keith and Alessandra Pelloni, (2005). "Growth, cycles, and stabilization policy," Oxford Economic Papers, 57(2), pp. 262-282.

Buera, Francisco and Yongseok Shin (2008), "Financial Frictions and the Persistence of History: A Quantitative Exploration", mimeo.

Caballero, Ricardo J. and Adam B. Jaffe (1993), "How High Are the Giants’ Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Macroeconomics Annual, 8, pp. 15-74.

Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans (2005), "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, 113(1), pp. 1-45.

Comin, Diego, and Mark Gertler (2006), "Medium-Term Business Cycles," American Economic Review, 96(3) , 523-551.

Comin, Diego, and Sunil Mulani, (2007), "A theory of growth and volatility at the aggregate and firm level," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.

Dinopoulos, Elias, and Peter Thompson (1998), "Schumpeterian Growth Without Scale Effects." Journal of Economic Growth, 3(4), 313-336.

Duflo, Esther, and Abhijit Banerjee (2005), “Growth Theory through the Lens of Development Economics,” Handbook of Economic Growth, 1A, Steve Durlauf and Philippe Aghion, editors, (North Holland: Elsevier Science Ltd.), pp. 473-552.

Fatás, Antonio, "Endogenous Growth and Stochastic Trends (2000)," Journal of Monetary Economics, 45(1), 107-128.

Grossman, Gene, and Elhanan Helpman (1991). Innovation and Growth in the Global Economy(Cambridge, MA: MIT Press)

Howitt, Peter (2000), "Endogenous Growth and Cross-Country Income Differences," American Economic Review, 90(4), 829-846.

Ireland, Peter N. (2004) "Technology Shocks in the New Keynesian Model," Review of Economics and Statistics, 86(4), pp. 923-936.

Jones, Charles I. (1995), "R&D-Based Models of Economic Growth," Journal of Political Economy. 103(4), 1127-70.

Klenow, Peter J., and Andres Rodriguez-Clare (1997), "Economic growth: A review essay," Journal of Monetary Economics, 40(3), 597-617.

Kortum, Samuel, (1993), "Equilibrium R&D and the Patent-R&D Ratio: U.S. Evidence,"American Economic Review, 83(2), pp. 450-457.

Kydland, Finn E., and Edward C. Prescott (1982), "Time to Build and Aggregate Fluctuations,"Econometrica, 50(6), 1345-1370.

King, Robert G and Levine, Ross (1993), "Finance and Growth: Schumpeter Might Be Right," Quarterly Journal of Economics, 108(3), pp. 717-37,

Mankiw, Gregory N., David Romer, and David N. Weil (1992), "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, 107 (2), 407-437.

McCraw, Thomas (2007). Prophet of Innovation: Joseph Schumpeter and Creative Destruction(Cambridge, MA:The Belknap Press).

Phillips, Kerk L. and JeffWrase (2006). "Is Schumpeterian ‘Creative Destruction’ a Plausible Source of Endogenous Real Business Cycle Shocks?," Journal of Economic Dynamics and Control, 30(11), pp. 1885-1913.

Romer, Paul (1990), “Endogenous Technological Change” The Journal of Political Economy, 98 (5), pp. 71-102.

Schumpeter, Joseph (1934). The Theory of Economic Development. (Cambridge, MA: Harvard University Press).

Segerstrom, Paul. (1998), “Endogenous GrowthWithout Scale Effects”, American Economic Review 88, 1290-1310.

Smets, Frank.and Rafel Wouters (2003), "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area, "Journal of the European Economic Association, 1 (5), pp. 1123-1175.

Solow, Robert M. (1956),"A Contribution to the Theory of Economic Growth,"Quarterly Journal of Economics, 70, 65-94.

Swan, Trevor W. (1956), "Economic Growth and Capital Accumulation," Economic Record, 32, 334-361.

Wacziarg, Romain (2002), "Review of Easterly’s “The Elusive Quest for Growth”," Journal of Economic Literature, 40(3), 907-918.Aghion, Philippe and Peter