Business Cycle Fluctuations and Learning-by-doing Externalities in a One-sector Model

Journal article: We consider a one-sector Ramsey-type growth model with inelastic labor and learning-by-doing externalities based on cumulative gross investment (cumulative production of capital goods), which is assumed, in accordance with Arrow (1962), to be a better index of experience than the average capital stock. We prove that a slight memory effect characterizing the learning-by-doing process is enough to generate business cycle fluctuations through a Hopf bifurcation leading to stable periodic orbits. This is obtained for reasonable parameter values, notably for both the amount of externalities and the elasticity of intertemporal substitution. Hence, contrary to all the results available in the literature on aggregate models, we show that endogenous fluctuations are compatible with a low (in actual fact, zero) wage elasticity of the labor supply.

Author(s)

Hippolyte d’Albis, Emmanuelle Augeraud-Véron, Alain Venditti

Journal
  • Journal of Mathematical Economics
Date of publication
  • 2012
Keywords JEL
E32
Keywords
  • One-sector infinite-horizon model
  • Learning-by-doing externalities
  • Inelastic labor
  • Business cycle fluctuations
  • Hopf bifurcation
  • Local determinacy
Pages
  • 295-308
Version
  • 1
Volume
  • 48