An R&D-based real business cycle model

Ka Wai Terence Fung (), Chi Keung Lau and Kwok Ho Chan
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Ka Wai Terence Fung: United International College

International Review of Economics, 2016, vol. 63, issue 4, No 2, 327-358

Abstract: 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.

Keywords: Endogenous growth model; Real business cycle; Asymmetric information; Research and development (search for similar items in EconPapers)
JEL-codes: E3 O3 O4 (search for similar items in EconPapers)
Date: 2016
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Working Paper: A R&D Based Real Business Cycle Model (2013)
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DOI: 10.1007/s12232-016-0257-0

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