A Simple Business-Cycle Model with Schumpeterian Features | Zendy

Luís F. Costa | Zendy; Huw David Dixon | Zendy

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A Simple Business-Cycle Model with Schumpeterian Features

Author(s) -

Luís F. Costa,

Huw David Dixon

Publication year - 2005

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.831204

Subject(s) - simple (philosophy) , business cycle , economics , econometrics , mathematical economics , neoclassical economics , keynesian economics , epistemology , philosophy

We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new ‘prosperity plateau,’ but contractionary shocks only affect the market power of mature industries.

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