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Full-Text Articles in Finance and Financial Management
Stochastic Business Cycle Volatilities, Capital Accumulation And Economic Growth: Lessons From The Global Credit Market Crisis, Kwamie Dunbar
Stochastic Business Cycle Volatilities, Capital Accumulation And Economic Growth: Lessons From The Global Credit Market Crisis, Kwamie Dunbar
WCBT Faculty Publications
The recent global economic downturn in a number of economies was preceded by rising credit market risk brought on by a massive financial market failure. This paper develops a small open economy model that analyzes the interaction of business cycle volatilities with capital accumulation and the subsequent impacts on economic growth. We use a stochastic dynamic programming model to test the central hypothesis that rising volatility shocks is an inhibitor to capital accumulation and subsequently economic growth. The model illustrates that traditional capital-based growth models which assume a constant capital stock are not consistent with the business cycle variation in …