An R&D-based real business cycle model

Fung, Ka Wai Terence, Lau, 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 1865-1704

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Official URL: http://dx.doi.org/10.1007/s12232-016-0257-0

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: N100 Business studies
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Business and Management
Depositing User: Becky Skoyles
Date Deposited: 09 Jun 2016 10:27
Last Modified: 13 Sep 2017 12:58
URI: http://nrl.northumbria.ac.uk/id/eprint/27072

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