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Labor hoarding, superior information, and business cycle dynamics

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  • Boileau, Martin
  • Normandin, Michel

Abstract

In this paper, we test whether labor-hoarding environments with basic and augmented laws of motion provide an adequate explanation for observed business cycle dynamics. The basic law of motion assumes that the information set used by economic agents to forecast future forcing variables includes only the history of forcing variables. Augmented laws of motion assume that the information set is superior and include both forcing and hidden exogenous variables. We show that the labor-hoarding environment with the basic law of motion fails to replicate observed business cycle facts, while the environment with augmented laws of motion successfully matches these facts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2003)
Issue (Month): 2 (November)
Pages: 397-418

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Handle: RePEc:eee:dyncon:v:28:y:2003:i:2:p:397-418

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Web page: http://www.elsevier.com/locate/jedc

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  1. Kevin Salyer & Kevin Hoover, 2003. "Technology Shocks Or Colored Noise? Why Real-Business-Cycle Models Cannot Explain Actual Business Cycles," Working Papers 9729, University of California, Davis, Department of Economics.
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  4. Boileau, Martin & Normandin, Michel, 2002. "Aggregate employment, real business cycles, and superior information," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 495-520, April.
  5. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
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  8. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  9. Cooley, T.F. & Cho, J.O., 1991. "The Business Cycle with Nominal Contracts," Papers 90-07, Rochester, Business - General.
  10. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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  12. Flavin, Marjorie, 1993. "The Excess Smoothness of Consumption: Identification and Interpretation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 651-66, July.
  13. King, Robert G & Watson, Mark W, 1996. "Money, Prices, Interest Rates and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 35-53, February.
  14. Michel Normandin, 1994. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Cahiers de recherche CREFE / CREFE Working Papers 31, CREFE, Université du Québec à Montréal.
  15. Rotemberg, Julio J & Woodford, Michael, 1996. "Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 86(1), pages 71-89, March.
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  17. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers 127, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Michel Normandin, 2006. "Fiscal Policies, External Deficits, and Budget Deficits," Cahiers de recherche 0632, CIRPEE.
  2. Boileau, Martin & Normandin, Michel, 2003. "Capacity utilization, superior information, and the business cycle," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 283-309, September.
  3. Denis Larocque & Michel Normandin, 2004. "Econometric Inference, Cyclical Fluctuations, and Superior Information," Cahiers de recherche 0434, CIRPEE.

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