Labor Adjustment Costs and Endogenous Cycling in Dynamic General Equilibrium Models.

Aggregate fluctuations display both persistence and damped oscillations in response to transitory shocks. The one sector growth model cannot explain these patterns. This major defect of this model results in its total inability to produce endogenous cycling, because its stable eigenvalues are positive and real. The aim of this paper is to demonstrate that the neoclassical growth model only with labor adjustment costs can produce endogenous cycling.