Fluctuations in convex models of endogenous growth, II: Business cycle properties

Larry E. Jones, Rodolfo E. Manuelli, Henry E. Siu

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

Using ideas from the endogenous growth literature, we present a model of the endogenous determination of productivity growth based on individual worker decisions about human capital investment. We calibrate a version of the model to match long run growth facts from the US and study the business cycle properties of this model. This approach offers improvements along several dimensions over standard exogenous growth methodologies. Most importantly, our stochastic endogenous growth model generates much greater serial correlation in output growth and labor supply volatility relative to its real business cycle counterpart. We conclude that using the extra discipline of reproducing the trend productivity growth features of the data endogenously constitutes an important missing component from the real business cycle approach.

Original languageEnglish (US)
Pages (from-to)805-828
Number of pages24
JournalReview of Economic Dynamics
Volume8
Issue number4
DOIs
StatePublished - Oct 2005

Bibliographical note

Funding Information:
We thank Craig Burnside, Larry Christiano, Ellen McGrattan, Jim Nason and Ed Prescott for their help, and the National Science Foundation for financial support.

Keywords

  • Business cycle fluctuations
  • Human capital investment
  • Productivity growth

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