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An R&D-based Real Business Cycle Model

Fung, Ka Wai Terence, Lau, Marco Chi Keung and Chan, Kwok Ho (2016) An R&D-based Real Business Cycle Model. International Review of Economics, 63 (4). pp. 327-358. ISSN 1863-4613

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Abstract

The New Keynesian Real Business Cycle model with staggered price adjustment is augmented with an R&D producing sector. Two sources of economic shocks are considered, namely random participation (perturbances to the value of alternative investment opportunities in another sector) and financial intermediation (shocks to the cost of raising capital in the financial intermediation market). We find that, when compared to the baseline model, both models can explain procyclical R&D spending. Additionally, the investment oversensitivity problem is corrected. However, only the financial intermediation model is consistent with the observed finding that the volatility of R&D is larger than those of investment and output.

Item Type: Article
Uncontrolled Keywords: Endogenous growth model; Real business cycle; Asymmetric information; Research and development
Subjects: H Social Sciences > HB Economic Theory
Schools: Huddersfield Business School
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Depositing User: Jonathan Cook
Date Deposited: 14 Nov 2017 13:26
Last Modified: 14 Nov 2017 13:26
URI: http://eprints.hud.ac.uk/id/eprint/33887

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