Working Paper: NBER ID: w7633
Authors: Larry E. Jones; Rodolfo E. Manuelli; Henry E. Siu
Abstract: Our purpose in this paper is to present a class of convex endogenous growth models, and to analyze their performance in terms of both growth and business cycle criteria. The models we study have close analogs in the real business cycle literature. In fact, we interpret the exogenous growth rate of productivity as an endogenous growth rate of human capital. This perspective allows us to compare the strengths of both classes of models. In order to highlight the mechanism that gives endogenous growth models the ability to improve upon their exogenous growth relatives, we study models that are symmetric in terms of human and physical capital formation -- our two engines of growth. More precisely, we analyze models in which the technology used to produce human capital is identical to the technologies used to produce consumption and investment goods, and in which the technology shocks in the two sectors are perfectly correlated. We find that endogenous growth models can generate levels of labor volatility close to those observed in the data, as well as positively correlated growth rates of output. We also find that these models outperform a related exogenous growth version in most dimensions.
Keywords: No keywords provided
JEL Codes: D92; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| endogenous growth models (O41) | labor volatility (J89) |
| endogenous growth models (O41) | output growth rates (O40) |
| endogenous growth models (O41) | exogenous growth models (O41) |
| human capital production technology (J24) | consumption and investment goods technology (E20) |