| This dissertation is concerned with a wide variety of issues related to business cycles, growth, and development in a real business cycle (RBC) model with endogenous growth. This is the first neoclassical growth model to allow agents to choose the length of time to develop new technologies (R&D period). The number of subperiods in the R&D period is an input in developing new technology that is distinguished from labor hours devoted to either R&D or manufacturing at each subperiod. In choosing the R&D period, there is a trade-off between lower rates of increase sooner and higher rates of increase later in consumption. This broadens the concept of intertemporal substitution and causes longer movements in business activity. As a result, this is the first RBC model which focuses on medium business cycles instead of short cycles.; The mathematical foundation is laid first. I prove the existence of optimum and show the stochastic steady state solution and balanced growth paths.; Four economic issues are considered covering topics in business cycle theory, empirical research of macroeconomic time series, and growth theory. First, I respond to a crucial criticism from skeptics of existing RBC models. This criticism is directed at the assumption that short-run productivity shocks are the cause of business cycle fluctuations. In responding to this criticism, I lay the micro-foundation, and analyze how this model economy separates technological changes from short-run disturbances by addressing medium cycles independently. Second, I report the spectral analysis of the U.S. data and the results of model calibrations for medium cycles, and discuss their implications for macroeconomic time series. Third, I solve an important puzzle in growth theory concerning the embodiment hypothesis by applying this new theory. Fourth, I discuss the link of R&D activities with the duration of medium cycles, amplitudes of business cycles, and long-run growth rate.; The issues of development economics are examined by special cases in this model such as a stagnant economy, an economy with high growth rate first and then zero growth rate in steady state, and an economy with positive growth always, but upswings or downswings of medium and long cycles, etc. Then the empirical puzzles of cross-country diversity in income levels, growth rates, and rapid growth of the four "Asian Dragon" economies are explained by this integrated model. |
