Economics 411

These notes describe a version of the model presented by Comin and Gertler (2006) which integrates a theory of cycles and growth. The cycles they have in mind are ‘intermediate cycles’, which are frequencies of oscillation in the data that are lower than the 8 to 32 quarter frequencies conventionally associated with business cycles. In some respects, the model resembles the model of Romer that we studied earlier, in which growth occurs because of the benefits of specialization. In the model discussed here, growth occurs because of the benefits of new ideas for production. The notion is that there are three types of ideas: (i) those which have, with the application of economic resources, been turned into practical use; (ii) those which are known, but which require further development to be made practical and (iii) the ideas that are out there, still waiting to be discovered.1 Examples of (i) include the internal combustion engine, the electric light bulb and the polio vaccine. Examples of (ii) include a fully functioning artificial human heart, and (iii) include the lap top computer, from the perspective of, say, 50,000 BCE. The following section describes the model. After that, evidence is reported on the dynamic properties of the model. In the concluding remarks that appear in the third section, we summarize some of the research implications of this handout.