It is common amonst macroeconomists to view aggregate investment fluctuations as a rational response to fluctuating incentives, driven by exogenous movements in total factor productivity. However, this approach raises a number of questions. Why treat investments in physical capital as...

We develop a model of 'intrinsic' business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise...