A Schumpeterian Heterogeneous Agent Model of the Business Cycle with Innovation Spreads instead of Innovation Swarms

An essential feature of Schumpeter’s business cycle theory is the attempt to explain the macrodynamics of an economy by means of innovative heterogeneous agents. It has been criticized for being theoretically inconsistent as well as for its lack of empirical confirmation. In particular, the three-wave-scheme stands in contradiction to empirical innovation studies. The present paper collects scattered evidence on cyclically changing varieties on the firm level. It then presents a heterogeneous-agent market-process based model of the business cycle in which innovations of any kind can take place all the time. This avoids many shortcomings of Schumpeter’s approach.