Does growth matter for cycles?

Serodio, Pedro ORCID: https://orcid.org/0000-0001-8835-1611 (2020) Does growth matter for cycles? Working Paper. N/A. . [Monograph] (Published online first)

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Abstract

The relatively successful consolidation of dynamic stochastic general equi- librium models as the preferred modelling strategy in macroeconomics has had, so far, largely abstracted from the problem of how productivity growth is generated and instead focused on refining its performance around a stationary steady-state. Incorporating en- dogenously determined productivity growth is likely to affect the internal propagation mechanism of a standard RBC model through a feedback between output and the growth rate and, if so, abstracting from that process may lead to the model underreporting out- put fluctuations both at higher and lower frequencies. I develop three alternative spec- ifications for the innovation generating research sector and compared the performance of those models with a benchmark RBC model with exogenous growth. All alterna- tive specifications fail to outperform the standard RBC model at higher frequencies and only modestly improve over lower frequencies, but do reasonably well at capturing the behaviour of R&D over the cycle at all frequencies.

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