This paper is an attempt to contribute to the integration of business-cycle analysis with long-term growth. A real-business-cycle model with endogenous growth is developed and estimated with U.S. data. In the present framework, wage movements do not have to be transitory to generate fluctuations in labor effort. The reduced form is a constrained bivariate output/hours (or real-wage/hours) VAR process. The bivariate setup provides a useful framework for analyzing the persistence of output fluctuations, given that the theory implies that hours of work contain information about future output movements.

This paper is an attempt to contribute to the integration of business-cycle analysis with long-term growth. A real-business-cycle model with endogenous growth is developed and estimated with U.S. data. In the present framework, wage movements do not have to be transitory to generate fluctuations in labor effort. The reduced form is a constrained bivariate output/hours (or real-wage/hours) vector autoregressive process. The bivariate setup provides a useful framework for analyzing the persistence of output fluctuations, given that the theory implies that hours of work contain information about future output movement.

The role that investment-specific technological change played in generating post-war U.S. growth is investigated here. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological progress. The balanced growth path for the model is characterized and calibrated to U.S. National Income and Product Account (NIPA) data. The quantitative analysis suggests that investment-specific technological change accounts for the major part of growth.

This paper adopts Keynes' view that shocks to the marginal efficiency of investment are important for business fluctuations, but incorporates it in a neoclassical framework with endogenous capacity utilization. Increases in the efficiency of newly produced investment goods stimulate the formation of "new" capital and more intensive utilization and accelerated depreciation of "old" capital. Theoretical and quantitative analysis suggests that the shocks and transmission mechanism studied here may be important elements of business cycles.