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Informational Cycles

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  • Zeira, Joseph

Abstract

This paper shows that if demand is unknown and continuously changing and if investment is costly, then output and investment are cyclical. The cycles are generated by changes in information over time as investors increase production and, thus, accumulate more information about demand. These are, therefore, informational cycles. The paper also shows that the frequency of cycles depends positively on profitability and negatively on the rate of interest. Copyright 1994 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 61 (1994)
Issue (Month): 1 (January)
Pages: 31-44

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Handle: RePEc:bla:restud:v:61:y:1994:i:1:p:31-44

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Cited by:
  1. Vettas, Nikolaos, 1997. "Entry and exit under demand uncertainty," Economics Letters, Elsevier, vol. 57(2), pages 227-234, December.
  2. Flavio Toxvaerd, 2005. "Record Breaking and Temporal Clustering," Discussion Paper Series dp395, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  3. Veldkamp, Laura L., 2005. "Slow boom, sudden crash," Journal of Economic Theory, Elsevier, vol. 124(2), pages 230-257, October.
  4. Schivardi, Fabiano, 2003. "Reallocation and learning over the business cycle," European Economic Review, Elsevier, vol. 47(1), pages 95-111, February.
  5. Fishman, Arthur & Rob, Rafael, 1998. "Experimentation and Competition," Journal of Economic Theory, Elsevier, vol. 78(2), pages 299-320, February.
  6. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  7. Huanxing Yang, 2010. "Information aggregation and investment cycles with strategic complementarity," Economic Theory, Springer, vol. 43(2), pages 281-311, May.
  8. Ryo Horii & Yoshiyasu Ono, 2005. "Financial Crisis and Recovery: Learning-based Liquidity Preference Fluctuations," Macroeconomics 0504016, EconWPA.
  9. Bertocchi, Graziella & Spagat, Michael, 1998. "Growth under uncertainty with experimentation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(2), pages 209-231, September.
  10. Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
  11. Beaudry, Paul & Gonzalez, Francisco M., 2003. "An equilibrium analysis of information aggregation and fluctuations in markets with discrete decisions," Journal of Economic Theory, Elsevier, vol. 113(1), pages 76-103, November.
  12. Peress, Joel, 2010. "The tradeoff between risk sharing and information production in financial markets," Journal of Economic Theory, Elsevier, vol. 145(1), pages 124-155, January.
  13. Creane, Anthony, 1996. "An informational externality in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 331-344, May.
  14. Peress, Joël, 2011. "Learning From Stock Prices and Economic Growth," CEPR Discussion Papers 8569, C.E.P.R. Discussion Papers.
  15. Horii, Ryo & Ono, Yoshiyasu, 2009. "Information Cycles and Depression in a Stochastic Money-in-Utility Model," MPRA Paper 13485, University Library of Munich, Germany.
  16. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.
  17. Süssmuth, Bernd, 2000. "Endogenously-Timed Herding And The Synchronization Of Investment Cycles," Discussion Papers in Economics 24, University of Munich, Department of Economics.

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