This paper examines a dynamic model of the business cycle in which delay plays a crucial role. Since the profitability of investment depends of the general level of economic activity, entrepreneurs have an incentive to delay investments during a recession. Endogenous delay thus prolongs the recovery from a recession and heightens the effect of the boom. A number of characteristics of delay in the cycle are characterized. The effect of delay is asymmetric, it lengthens the recovery but not the downturn. Delay can increase the amplitude and typically reduces the frequency (increases the period) of the cycle. It also reduces the average level of activity, but it achieves this effect by prolonging the recession rather than by reducing the amplitude of the cycle. The welfare effects of delay are ambiguous, however.
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