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Growth and Business Cycle Research Group

Discussion papers 2001

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Matas-Mir, A., Osborn, D. R., (2001). ‘Does Seasonality Change over the Business Cycle? An Investigation using Monthly Industrial Production Series’,Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 9. Published in the European Economic Review, vol. 48, pp. 1309-1332.

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This paper examines the proposition that the business cycle affects seasonality in industrial production, with output being switched to the traditionally low production summer months when recent (annual) growth has been strong. This is investigated through the use of a restricted threshold autoregressive model for the monthly growth rate in a total of 74 industries in 16 OECD countries. Approximately one third of the series exhibit significant nonlinearity, with this nonlinearity predominantly associated with changes in the seasonal pattern. Estimates show that the summer slowdown in many European countries is substantially reduced in the regime of higher recent growth.


Sensier, M., van Dijk, D. (2001). ‘Short-term Volatility versus Long-term Growth: Evidence in US Macroeconomic Time Series’, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 8.

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We test for a change in the volatility of 215 US macroeconomic time series over the period 1960-1996.  We find that about 90% of these series have experienced a break in volatility during this period.  This result is robust to controlling for instability in the mean and business cycle nonlinearities.  Real variables have seen a reduction in volatility since the early 1980s, which is accompanied by lower but steadier output growth.  Furthermore, nominal variables have seen temporary increases in their volatility around the early 1980s.  This suggests the existence of a trade-off between short-term volatility and the long-term pattern of growth.


Blackburn, K., Bose, N., Capasso, S., (2005). ‘Financial Development, Financing Choice and Economic Growth’, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 7. Review of Development Economics, vol.9(2), pp.135-149.

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In an overlapping generations economy households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information.  An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or a double moral hazard problem as a result of its own decision about whether or not to undertake costly information acquisition.  The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime.  Based on this analysis, the paper provides a theory of the joint determination of real and financial development with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance.


Blackburn, K., Bose, N., (2001). ‘A Model of Trickle Down Through Learning’, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 6. Published in the Journal of Economic Dynamics and Control, 2003, vol. 27, pp. 445-466.

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This paper presents an analysis of income distribution based on an overlapping generations model of imperfect capital markets, technological non-convexities and information acquisition. Heterogeneous, altruistic agents apply for loans from financial intermediaries to undertake risky investment projects. Borrowing is prohibited below a critical level of wealth that depends on agents' evaluation of risk which is updated over time according to the arrival of new information. This process of learning governs the transition of lineage wealth and, with it, the dynamics of income distribution. In general, limiting outcomes depend on initial conditions that determine the extent to which class divisions persist in multiple steady state equilibria. Such divisions may vanish if the the initial distribution satisfies certain criteria.


Blackburn, K., Bose, N., (2001). ‘Information, Imitation and Growth’, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 5. Published in the Journal of Development Economics, 2003, vol.70, pp.201-223..

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This paper presents an analysis of the role of information in determining the growth and development prospects of economies.  In an overlapping generations model, producers of capital choose between two types of technology - safe and risky.   Depending on the information available, decision making may or may not be characterised by herd behaviour whereby each producer imitates the decisions of others in an information cascade.  Multiple development regimes arise when the quality of information is determined endogenously through purposeful, but costly, activities.   It is shown that both the prospect of transition between these regimes and the characteristics of the transition path can be very different in imitation-free and imitation-prone economies.


Blackburn, K., Pelloni, A., (2001). ‘On the Relationship Between Growth and Volatility in Learning-by-Doing Economies’, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 1. Published in Economics Letters, vol. 83(1), pp.123-127.

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This paper contains an investigation into the potential linkages between the short-run (cyclical) and long-run (secular) movements in economic activity. The investigation is based on an analytically solvable stochastic monetary growth model in which learning-by-doing accounts for endogenous technological change.  The dynamic general equilibrium of this model implies that both the first and second moments of disturbances have first-order effects on both the first and second moments of variables.  Given this, it is shown that the correlation between the mean and variance of output growth depends fundamentally on two main factors - the source of stochastic fluctuations (real shocks or nominal shocks) and the functioning of the labour market (wage flexibility or wage rigidity). These results contradict certain common presumptions and may help to explain certain empirical evidence.