| By: |
Ingrid Kubin (Department of Economics, Vienna University of Economics and Business);
Thomas O. Zörner (Department of Economics, Vienna University of Economics and Business) |
| Abstract: |
We augment a model of endogenous credit cycles by Matsuyama et al.(2016) with
human capital to study the impact of human capital on the stability of central
economic aggregates. Thus we offer a linkage between human capital formation
and credit market instability on a macrolevel combined with an analysis of
functional income distribution. Human capital is modelled as pure external
effect of production following a learning-by-producing approach. Agents have
access to two different investment projects, which differ substantially in
their next generations spillover effects. Some generate pecuniary
externalities and technological spillovers through human capital formation
whereas others fail to do so and are subject to financial frictions. Due to
this endogenous credit cycles occur and a pattern of boom and bust cycles can
be observed. We explore the impact of human capital on the stability of the
system by numerical simulations which indicate that human capital has an
ambiguous effect on the evolution of the output. Depending on the strength of
the financial friction and the output share of human capital it either
amplifies or mitigates output fluctuations. This analysis shows that human
capital is an essential factor for economic stability and sustainable growth
as a high human capital share tends to make the system's stability robust
against shocks. |
| Keywords: |
Human capital, Learning-by-producing, Credit cycles, Financial instability |
| JEL: |
C61 E32 E24 J24 |
| Date: |
2017–08 |
| URL: |
http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp251&r=fdg |