IDEAS home Printed from https://ideas.repec.org/p/man/cgbcrp/74.html
   My bibliography  Save this paper

Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility

Author

Listed:
  • K Blackburn
  • D Varvarigos

Abstract

We study the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends onboth deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. We derive a number of new results which challenge some of the results in the existing literature. First, we show that the optimal allocations of time to working and learning are both pro-cyclical. Second, we identify a preference parameter (other than the coefficient of relative risk aversion) that is potentially crucial for governing the effect of volatility on growth. Third, we demonstrate how the correlation between growth and volatility can be either positive or negative under each type of learning. Fourth, we also reveal how the sign of the correlation may be different for the two types of shock. Our results may be seen as providing further explanation for the lack of robust evidence on the relationship.

Suggested Citation

  • K Blackburn & D Varvarigos, 2006. "Human Capital Accumulation in a Stochastic Environment: Some New Results on the Relationship Between Growth and Volatility," Centre for Growth and Business Cycle Research Discussion Paper Series 74, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:74
    as

    Download full text from publisher

    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr74.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hercowitz, Zvi & Sampson, Michael, 1991. "Output Growth, the Real Wage, and Employment Fluctuations," American Economic Review, American Economic Association, vol. 81(5), pages 1215-1237, December.
    2. Erik Canton, 2002. "Business cycles in a two-sector model of endogenous growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 477-492.
    3. Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-163, June.
    4. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    5. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
    6. repec:bla:econom:v:63:y:1996:i:251:p:477-94 is not listed on IDEAS
    7. Martin, Philippe & Ann Rogers, Carol, 2000. "Long-term growth and short-term economic instability," European Economic Review, Elsevier, vol. 44(2), pages 359-381, February.
    8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    9. Blackburn, Keith & Pelloni, Alessandra, 2004. "On the relationship between growth and volatility," Economics Letters, Elsevier, vol. 83(1), pages 123-127, April.
    10. Saint-Paul, Gilles, 1993. "Productivity growth and the structure of the business cycle," European Economic Review, Elsevier, vol. 37(4), pages 861-883, May.
    11. Martin, Philippe & Rogers, Carol Ann, 1997. "Stabilization Policy, Learning-by-Doing, and Economic Growth," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 152-166, April.
    12. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2005. "Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 805-828, October.
    13. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    14. Andres Arias & Gary Hansen & Lee Ohanian, 2007. "Why have business cycle fluctuations become less volatile?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 43-58, July.
    15. Blackburn, Keith & Galindev, Ragchaasuren, 2003. "Growth, volatility and learning," Economics Letters, Elsevier, vol. 79(3), pages 417-421, June.
    16. Harris Dellas & Plutarchos Sakellaris, 2003. "On the cyclicality of schooling: theory and evidence," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 148-172, January.
    17. Hugo A. Hopenhayn & Maria E. Muniagurría, 1993. "Policy variability and economic growth," Economics Working Papers 30, Department of Economics and Business, Universitat Pompeu Fabra.
    18. Steven P. Cassou & Kevin J. Lansing, 2006. "Tax Reform with Useful Public Expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 631-676, October.
    19. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
    20. Hugo A. Hopenhayn & María E. Muniagurria, 1996. "Policy Variability and Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 611-625.
    21. Sakellaris, Plutarchos & Spilimbergo, Antonio, 2000. "Business cycles and investment in human capital: international evidence on higher education," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 221-256, June.
    22. Philippe Aghion & Gilles Saint‐Paul, 1998. "Uncovering Some Causal Relationships Between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey," LABOUR, CEIS, vol. 12(2), pages 279-303, July.
    23. Blackburn, Keith, 1999. "Can Stabilisation Policy Reduce Long-Run Growth?," Economic Journal, Royal Economic Society, vol. 109(452), pages 67-77, January.
    24. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
    25. Imbs, Jean, 2002. "Why the Link Between Volatility and Growth is Both Positive and Negative," CEPR Discussion Papers 3561, C.E.P.R. Discussion Papers.
    26. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
    27. Brunetti, Aymo, 1998. "Policy volatility and economic growth: A comparative, empirical analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 35-52, February.
    28. Caporale, Tony & McKiernan, Barbara, 1996. "The Relationship between Output Variability and Growth: Evidence from Post War UK Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 229-236, May.
    29. de Hek, Paul A, 1999. "On Endogenous Growth under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 727-744, August.
    30. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    31. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    32. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    33. repec:bla:manchs:v:69:y:2001:i:5:p:534-52 is not listed on IDEAS
    34. Steven P. Cassou & Kevin J. Lansing, 1996. "Welfare, stabilization, or growth: a comparison of different fiscal objectives," Working Papers (Old Series) 9614, Federal Reserve Bank of Cleveland.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dimitrios Varvarigos, 2006. "On stabilisation policy: Are there conflicting implications for growth and welfare?," Discussion Paper Series 2006_19, Department of Economics, Loughborough University, revised Jul 2006.
    2. Ragchaasuren Galindev, 2008. "Uncertainty, Learning And Growth," Manchester School, University of Manchester, vol. 76(5), pages 539-548, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keith Blackburn & Dimitrios Varvarigos, 2008. "Human capital accumulation and output growth in a stochastic environment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(3), pages 435-452, September.
    2. Christoph Priesmeier & Nikolai Stähler, 2011. "Long Dark Shadows Or Innovative Spirits? The Effects Of (Smoothing) Business Cycles On Economic Growth: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 898-912, December.
    3. Dimitrios Varvarigos, 2006. "On stabilisation policy: Are there conflicting implications for growth and welfare?," Discussion Paper Series 2006_19, Department of Economics, Loughborough University, revised Jul 2006.
    4. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
    5. D Varvarigos, 2004. "Non-neutrality and Uncertainty in a Model of Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 41, Economics, The University of Manchester.
    6. Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2008. "Volatility, Growth and Labour Elasticity," Working Paper series 32_08, Rimini Centre for Economic Analysis.
    7. Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2011. "Long‐Term Growth And Short‐Term Volatility: The Labour Market Nexus," Manchester School, University of Manchester, vol. 79(s1), pages 646-672, June.
    8. Keith Blackburn & Dimitrios Varvarigos, 2005. "Growth, Uncertainty and Finance," Economics Discussion Paper Series 0525, Economics, The University of Manchester.
    9. Ragchaasuren, Galindev, 2005. "The Relationship between Growth and Volatility under Alternative Shocks," Economics Discussion Papers 9980, University of Essex, Department of Economics.
    10. K Blackburn & A Pelloni, 2001. "On the Relationship Between Growth and Volatility in Learning-by-Doing Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 01, Economics, The University of Manchester.
    11. Mehmet Balcilar & Zeynel Abidin Ozdemir, 2020. "A re-examination of growth and growth uncertainty relationship in a stochastic volatility in the mean model with time-varying parameters," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 611-641, August.
    12. The Anh Pham, 2018. "Policy volatility and growth," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(2), pages 87-97, July.
    13. E Andreou & A Pelloni & M Sensier, 2003. "The effect of nominal shock uncertainty on output growth," Centre for Growth and Business Cycle Research Discussion Paper Series 40, Economics, The University of Manchester.
    14. Elena Andreou & Alessandra Pelloni & Marianne Sensier, 2008. "Is Volatility Good for Growth? Evidence from the G7," Economics Discussion Paper Series 0804, Economics, The University of Manchester.
    15. Barbara Annicchiarico & Alessandra Pelloni, 2014. "Productivity growth and volatility: how important are wage and price rigidities?," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 306-324, January.
    16. Ragchaasuren Galindev, 2008. "Uncertainty, Learning And Growth," Manchester School, University of Manchester, vol. 76(5), pages 539-548, September.
    17. The Pham, 2011. "Growth, volatility and stabilisation policy in a DSGE model with nominal rigidities and learning-by-doing," International Economics and Economic Policy, Springer, vol. 8(3), pages 307-322, September.
    18. repec:rim:rimwps:37-08 is not listed on IDEAS
    19. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2006. "How do trade and financial integration affect the relationship between growth and volatility?," Journal of International Economics, Elsevier, vol. 69(1), pages 176-202, June.
    20. Barbara Annicchiarico & Alessandra Pelloni & Fabrizio Valenti, 2016. "Volatility and Growth with Recursive Preferences," Working Paper series 16-05, Rimini Centre for Economic Analysis.
    21. Stilianos Fountas & Menelaos Karanasos, 2008. "Are economic growth and the variability of the business cycle related? Evidence from five European countries," International Economic Journal, Taylor & Francis Journals, vol. 22(4), pages 445-459.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:man:cgbcrp:74. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marianne Sensier (email available below). General contact details of provider: https://edirc.repec.org/data/semanuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.