TY - JOUR
T1 - An R&D-based Real Business Cycle Model
AU - Fung, Ka Wai Terence
AU - Lau, Chi Keung Marco
AU - Chan, Kwok Ho
PY - 2016/12
Y1 - 2016/12
N2 - 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.
AB - 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.
KW - Endogenous growth model
KW - Real business cycle
KW - Asymmetric information
KW - Research and development
UR - https://link.springer.com/journal/12232
U2 - 10.1007/s12232-016-0257-0
DO - 10.1007/s12232-016-0257-0
M3 - Article
VL - 63
SP - 327
EP - 358
JO - International Review of Economics
JF - International Review of Economics
SN - 1865-1704
IS - 4
ER -