Productivity Shocks and Aggregate Fluctuations in an Estimated Endogenous Growth Model with Human Capital

34 Pages Posted: 12 Sep 2011

See all articles by Jim Malley

Jim Malley

University of Glasgow - Department of Economics

Ulrich Woitek

University of Zurich

Date Written: August 31, 2011

Abstract

Employing an endogenous growth model with human capital, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate fluctuations in output, consumption, investment and hours. Given the importance of accounting for both the dynamics and the trends in the data not captured by the theoretical growth model, we introduce a vector error correction model (VECM) of the measurement errors and estimate the model’s posterior density function using Bayesian methods. To contextualize our findings with those in the literature, we also assess whether the endogenous growth model or the standard real business cycle model better explains the observed variation in these aggregates. In addressing these issues we contribute to both the methods of analysis and the ongoing debate regarding the effects of innovations to productivity on macroeconomic activity.

Keywords: endogenous growth, human capital, real business cycles, VECM measurement errors, Bayesian estimation

JEL Classification: C110, C520, E320

Suggested Citation

Malley, Jim and Woitek, Ulrich, Productivity Shocks and Aggregate Fluctuations in an Estimated Endogenous Growth Model with Human Capital (August 31, 2011). CESifo Working Paper No. 3567, Available at SSRN: https://ssrn.com/abstract=1926050 or http://dx.doi.org/10.2139/ssrn.1926050

Jim Malley (Contact Author)

University of Glasgow - Department of Economics ( email )

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HOME PAGE: http://www.gla.ac.uk/economics/malley/

Ulrich Woitek

University of Zurich ( email )

Zürichbergstrasse 14
CH-8032 Zurich
Switzerland

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