UMO-2014/13/N/HS4/02690
Mgr Marcin Bielecki
Endogenous growth, heterogeneous firms, business cycles, innovation, labour market,
welfare analysis.
Project objectives/Research hypothesis
The main goal of the research is to build upon and combine recent developments in the dynamic
macroeconomics literature into a unified framework in order to analyse the relationship between the
short-term business cycle fluctuations and long-term growth.
By integrating the insights of the endogenous growth literature into the business cycle analysis
framework of the DSGE literature, the research aims to provide quantitative measures of the influence
of short-term fluctuations on the long-term growth, and to aid the welfare analyses of the costs of
business cycles. This is a key information for the macro-stabilizing policy. Special attention is given to
the workings of the labour market in the monopolistically competing, heterogeneous firm setup.
Thanks to the search-and-matching model of the labour market, the project will be able to provide the
quantitative measure of welfare costs of labour market volatility. Since the prediction of the neoSchumpeterian models of endogenous growth is that small short-term volatility may be beneficial for
long-term growth, the research aims to find a “golden rule” of optimal growth and to reassess past
industrial and labour policy recommendations.
The applied part of the project aims to calibrate the model according to the Polish economy and to
estimate the welfare improvement resulting from switching the current labour market policy to the
flexicurity type model.
The research hypotheses are as follows:
H1. A small degree of the business cycle volatility improves the long-term growth rate due to the positive
cleansing effect while the influence of other negative effects is smaller.
H2. The above result is dependent on the specifics of the institutional setting of the economy, especially
on the existence and height of enry barriers for new enterprises.
H3. Even small business cycle fluctuations lead to an increase in labour market volatility, which is
welfare deteriorating.
H4. There is a welfare optimum between the gains from faster growth and losses from labour market
volatility, that can be realized through the flexicurity type labour market policy.