Staff Report 271

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Growth and Business Cycles

Larry E. Jones - Visiting Scholar
Rodolfo E. Manuelli
Henry E. Siu

Published July 1, 2000

Abstract
We present a class of convex endogenous growth models and 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. 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 the two classes of models.

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.


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