NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Growth Cycles

George Evans, Seppo Honkapohja, Paul Romer

NBER Working Paper No. 5659
Issued in July 1996
NBER Program(s):   EFG

We construct a rational expectations model in which aggregate growth alternates between a low growth and a high growth state. When all agents expect growth to be slow, the returns on investment are low, and little investment takes place. This slows growth and confirms the prediction that the returns on investment will be low. But if agents expect fast growth, investment is high, returns are high, and growth is rapid. This expectational indeterminacy is induced by complementarity between different types of capital goods. In a growth cycle there are stochastic shifts between high and low growth states and agents take full account of these transitions. The rules that agents need to form rational expectations in this equilibrium are simple. The equilibrium with growth cycles is stable under the dynamics implied by a correspondingly simple learning rule

download in pdf format
   (2126 K)

email paper

This paper is available as PDF (2126 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5659

Published: American Economic Review, Vol. 88, no. 3 (June 1998): 495-515. citation courtesy of

Users who downloaded this paper also downloaded these:
Romer w5443 Why, indeed, in America? Theory, History, and the Origins of Modern Economic Growth
Romer w15755 Which Parts of Globalization Matter for Catch-up Growth?
Romer w3173 Human Capital And Growth: Theory and Evidence
Jones and Romer w15094 The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital
Romer w3098 Increasing Returns and New Developments in the Theory of Growth
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us