Animal Spirits Through Creative Destruction
We show how a Schumpeterian process of creative destruction can induce rational, herd behavior by entrepreneurs across diverse sectors as if fueled by "animal spirits." Consequently, a multisector economy, in which productivity improvements are made by independent, profit-seeking entrepreneurs, exhibits regular booms, slowdowns, and downturns as part of the long-run growth process. Our cyclical equilibrium has higher average growth, but lower welfare than the corresponding acyclical one. We show how a negative relationship can emerge between volatility and growth across cycling economies, and assess the extent to which our model matches several features of actual business cycles.
Year of publication: |
2003
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Authors: | Francois, Patrick ; Lloyd-Ellis, Huw |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 93.2003, 3, p. 530-550
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Publisher: |
American Economic Association - AEA |
Saved in:
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