Guo, Jang-Ting; Sirbu, Anca-Ioana and Suen, Richard M. H. (2010): On Expectations-Driven Business Cycles in Economies with Production Externalities: A Comment. Unpublished.
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Eusepi (2009, International Journal of Economic Theory 5, pp. 9-23) analytically finds that a one-sector real business cycle model may exhibit positive co-movement between consumption and investment when the equilibrium wage-hours locus is positively-sloped and steeper than the household's labor supply curve. However, we show that this condition does not imply expectations-driven business cycles will emerge in Eusepi's model. Specifically, a positive news shock about future productivity improvement leads to an aggregate recession whereby output, employment, consumption and investment all fall in the announcement period.
| Item Type: | MPRA Paper |
|---|---|
| Language: | English |
| Keywords: | Expectations-Driven Business Cycles; Production Externalities. |
| Subjects: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C62 - Existence and Stability Conditions of Equilibrium |
| ID Code: | 24989 |
| Deposited By: | Richard M. H. Suen |
| Deposited On: | 15. Sep 2010 03:25 |
| Last Modified: | 15. Sep 2010 03:25 |
| References: | Beaudry, Paul and Franck Portier (2004), "An Exploration into Pigou's Theory of Cycles," Journal of Monetary Economics 51, 1183-1216. Beaudry, Paul and Franck Portier (2006), "Stock Prices, News, and Economic Fluctuations," American Economic Review 96, 1293-1307. Beaudry, Paul and Franck Portier (2007), "When can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?" Journal of Economic Theory 135, 458-477. Benhabib, Jess and Roger E.A. Farmer (1994), "Indeterminacy and Increasing Returns," Journal of Economic Theory 63, 19-41. Eusepi, Stefano (2009), "On Expectations-Driven Business Cycles in Economies with Production Externalities," International Journal of Economic Theory 5, 9-23. Jaimovich, Nir and Sergio Rebelo (2008), "News and Business Cycles in Open Economies," Journal of Money, Credit, and Banking 40, 1699-1711. Jaimovich, Nir and Sergio Rebelo (2009), "Can News about the Future Drive the Business Cycle?" American Economic Review 99, 1097-1118. |
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