Co-movement, Capital and Contracts: 'Normal' Cycles Through Creative Destruction

P. Francois, H. Lloyd-Ellis

Research output: Working paperDiscussion paperOther research output

310 Downloads (Pure)

Abstract

We develop a unified theory of endogenous business cycles in which expansions are neoclassical growth periods driven by productivity improvements and capital accumulation, while downturns are the result of Keynesian contractions in aggregate demand below potential output. Recessions allow skilled labor to be reallocated to growth promoting activities which fuel subsequent expansions. However, rigidities in production and contractual limitations, inherent to the process of creative destruction, leave capital severely underutilized. A key feature of our equilibrium is the endogenous emergence of long term supply contracts between capitalist owners and producers.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages54
Volume2003-62
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-62

Keywords

  • Long-term contracting
  • investment irreversibility
  • putty-clay technology
  • asset- specificity
  • Endogenous cycles and growth

Fingerprint Dive into the research topics of 'Co-movement, Capital and Contracts: 'Normal' Cycles Through Creative Destruction'. Together they form a unique fingerprint.

  • Cite this

    Francois, P., & Lloyd-Ellis, H. (2003). Co-movement, Capital and Contracts: 'Normal' Cycles Through Creative Destruction. (CentER Discussion Paper; Vol. 2003-62). Macroeconomics.