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VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations

Published online by Cambridge University Press:  01 September 1998

Philippe Aghion  and
Gilles Saint-Paul
Philippe Aghion
Affiliation:
University College of London and Center for Economic Policy Research
Gilles Saint-Paul
Affiliation:
Universitat Pompeu Fabra and Center for Economic Policy Research
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Abstract

We develop a model of optimal productivity growth under demand fluctuations. We consider two alternative hypotheses. First, we assume that productivity growth is costly in terms of current production. Second, we assume that the cost of productivity improvements is independent of current production. It is shown that, in the first case, productivity improvements will be countercyclical whereas, in the second case, they will be procyclical. The model then is used to study the impact of the frequency and amplitude of fluctuations on long-run growth. The results corresponding to the first hypothesis are shown to be consistent with recent empirical work.

Keywords

Business CyclesEndogenous GrowthOpportunity CostLabor Hoarding
Type
Research Article
Information
Macroeconomic Dynamics , Volume 2 , Issue 3 , September 1998 , pp. 322 - 344
Copyright
© 1998 Cambridge University Press

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