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Volatility costs of R&D

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  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

Abstract

This paper incorporates endogenous growth into a New Keynesian DSGE framework to in-vestigate the effects of R&D on economic volatility. It identifies a mechanism through which the cyclicality of R&D and its effects on volatility depend on the cyclicality of production. R&D activity becomes more procyclical, thereby amplifying economic volatility when labor supply is procyclical. The conclusions are reversed if labor supply is countercyclical. Alterna-tive calibrations show that this link between R&D and production labor is weaker when R&D intensity, the spillover rate of innovation, and R&D adjustment costs are higher. In these cases, R&D tracks economic activity more closely which in turn magnifies economic volatility. The higher volatility has considerable welfare consequences and it implies that the steeper path of growth resulting from higher R&D activity comes at a price.

Suggested Citation

  • Uluc Aysun, 2019. "Volatility costs of R&D," Working Papers 2019-02, University of Central Florida, Department of Economics.
    • Handle: RePEc:cfl:wpaper:2019-02ua
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    Cited by:

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    More about this item

    Keywords

    Research and development; business cycles; endgenous growth; DSGE;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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