Increasing Returns, Capital Utilization, and the Effects of Government Spending (2001)
by
Jang-ting Guo
BibTeX
@MISC{Guo01increasingreturns,,
author = {Jang-ting Guo},
title = {Increasing Returns, Capital Utilization, and the Effects of Government Spending},
year = {2001}
}
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Abstract
We show that a one-sector real business cycle model with mild increasing returns-toscale and variable capital utilization is able to produce qualitatively realistic business cycles driven solely by aggregate demand shocks. In particular, a positive government spending shock can lead to simultaneous increases in output, consumption, investment, employment, labor productivity and the real wage. Our analysis illustrates a close relationship between this result and the recent literature that explores indeterminacy and sunspots in the real business cycle framework.
