Aggregate fluctuations in a monetary two-sector endogenous growth model

Abstract

This paper examines the implications of a monetary human capital investment endogenous growth model for aggregate economic fluctuations. In addition, an exogenous growth model with a similar human capital investment specification is included in the analysis to compare the business cycle properties of the endogenous growth model with that of the exogenous growth model. The money introduced into the models allows for the liquidity effects. It is found that both the endogenous and exogenous human capital investment growth models are able to capture the business cycle properties of U.S. data closely. Some sensitivity analysis results are provided. The theory predicts that the stochastic properties of the human capital shocks affect the ability of the models to generate the business cycle facts.