Long-Term Growth and Business Cycle Fluctuations

Summary

The potential impact of policies capable of increasing rates of technological diffusion and/or innovative is of significant importance, especially for emerging economies.  For these countries, a chief source of growth in productivity is through the transfer of technologies from developed countries, a process that is often very slow. Human capital and financial development, in particular, play important roles for increased absorptive capacity leading to productivity growth through technology transfer. On the other hand, business cycle fluctuations, and inflation volatility in particular, are also thought to be a major factor limiting growth in both developed and emerging economies. As yet, however, there are no models for policy analysis incorporating the combination of features necessary to study the interactions between finance, investment, R&D, macroeconomic volatility and growth. These features would include technology adoption decisions, endogenous competition, nominal rigidities and the role of the financial sector and financial frictions, for which there is scant research and evidence in the context of emerging economies.

Objectives

This project offers a number of innovations that can help shaping policy decisions at a macro level and, thus, with the potential for high impact on welfare. Thus, the broad aim is to deepen our understanding of the interactions between financial development, R&D, absorptive capacities and productivity and to arrive at prescriptions in the form of more effective monetary, fiscal, financial and competition policies for promoting growth. For that effect, we propose to embed endogenous growth into a series of DSGE model, in order to produce an environment in which we can assess the impact of macroeconomic, financial and industrial policies on the rates of R&D-led growth and of technology diffusion in advanced and emerging economies respectively.

Publications

Holden, Tom, 2011. "Products, patents and productivity persistence: A DSGE model of endogenous growth," Dynare Working Papers 4, CEPREMAP.