Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Business Cycles: Firms and Banks A08-V2
While an opportunity cost argument suggests that recessions are ideal times to undergo R&D aimed at enhancing productivity, empirical measures of U.S. R&Dactivity are procyclical. To resolve this discrepancy, I propose a calibrated real business cycle model featuring R&D-based growth through horizontal innovations. The model is used to quantitatively analyze the impact of business cycle shocks under various specifications of the R&D process. I find that the specification of R&D inputs is essential for the cyclicality of R&D activities. First, the popular knowledge-driven specification of R&D has a hard time to generate both procyclical R&D investment and procyclical R&D labor at the same time. Second, the calibrated multi-input specification generates procyclical R&D investment as well as procyclical employment of scientists. In addition, the endogenous growth mechanism gives rise to amplification of business cycle shocks.