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Explaining Speculative Expansions

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Author Info
Wei Xiao (University of New Orleans)

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Abstract

In this paper we use a modified neoclassical business cycle model to test two competing explanations of the expansion of the 1990s. The model can have indeterminate, multiple equilibria that give rise to expectation-driven business cycles. We fit into the model series of estimated speculative and productivity shocks and compare its predictions with empirical data. Our results suggest that the speculation hypothesis has more explanatory power than the productivity hypothesis in terms of matching the data. Speculative behavior of investors, therefore, may have contributed to the investment boom, the prolonged expansion, and the subsequent recession of the period 1991-2001.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1173-1173
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Handle: RePEc:bep:maccon:v:4:y:2004:i:1:p:1173-1173

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Related research
Keywords: Sunspots Indeterminacy Business Cycles Speculation

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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