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IMPLEMENTATION CYCLES, INVESTMENT, AND GROWTH *
Author(s) -
Francois Patrick,
LloydEllis Huw
Publication year - 2008
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2008.00501.x
Subject(s) - economics , business cycle , productivity , investment (military) , smoothing , recession , consumption (sociology) , consumption smoothing , tobin's q , monetary economics , endogenous growth theory , microeconomics , class (philosophy) , econometrics , macroeconomics , computer science , market economy , social science , sociology , politics , political science , law , computer vision , human capital , artificial intelligence
We develop a model of “intrinsic” cycles, driven by the decentralized behavior of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show that when the introduction of productivity improvements is endogenous, implementation cycles arise even in the presence of reversible investment and consumption smoothing. The implied cyclical equilibrium is unique within its class and shares several features in common with actual business cycles. In particular, its predictions are qualitatively consistent with the joint behavior of the investment rate and Tobin's Q during U.S. recessions.