Virtues of bad times: Interaction between productivity growth and economic fluctuations

Philippe Aghion, Gilles Saint-Paul

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)322-344
Number of pages23
JournalMacroeconomic Dynamics
Volume2
Issue number3
DOIs
StatePublished - Sep 1998

Keywords

  • Business cycles
  • Endogenous growth
  • Labor hoarding
  • Opportunity cost

ASJC Scopus subject areas

  • Economics and Econometrics

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