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Indeterminacy, home production, and the business cycle: A calibrated analysis

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  • Perli, Roberto

Abstract

In this paper I present a business cycle model with one market sector that produces a standard good, and another that produces a non--market, or home, good. The model shows that business cycles can be driven only by self fulfilling expectations, although other shocks (e.g. to technology) may play a significant role as well. With respect to other models of this kind (e.g. Farmer and Guo [1994]) the model does not require an unconventional upward sloping aggregate labor demand. The presence of either productive externalities or market power is of course crucial, but their magnitude is sensibly smaller than in comparable models. The time series that are generated have properties that are comparable to the real U.S. postwar series.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 41 (1998)
Issue (Month): 1 (February)
Pages: 105-125

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Handle: RePEc:eee:moneco:v:41:y:1998:i:1:p:105-125

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  1. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycle," RCER Working Papers 268, University of Rochester - Center for Economic Research (RCER).
  2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  3. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  4. Benhabib, Jess & Farmer, Roger E.A., 1995. "Indeterminacy and Sector-Specific Externalities," Working Papers 95-02, C.V. Starr Center for Applied Economics, New York University.
  5. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
  6. Caballero, R.J. & Lyons, R.K., 1991. "External Effects in U.S. Procyclical Productivity," Papers 91-19, Columbia - Graduate School of Business.
  7. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital utilization and returns to scale," Working Paper Series, Macroeconomic Issues 95-5, Federal Reserve Bank of Chicago.
  8. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
  9. Benhabib Jess & Rustichini Aldo, 1994. "Introduction to the Symposium on Growth, Fluctuations, and Sunspots: Confronting the Data," Journal of Economic Theory, Elsevier, vol. 63(1), pages 1-18, June.
  10. Peter Rupert & Richard Rogerson & Randall Wright, 1994. "Estimating substitution elasticities in household production models," Staff Report 186, Federal Reserve Bank of Minneapolis.
  11. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  12. Susanto Basu & John G. Fernald, 1995. "Aggregate productivity and the productivity of aggregates," International Finance Discussion Papers 532, Board of Governors of the Federal Reserve System (U.S.).
  13. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  14. Michael Woodford, 1990. "Self-Fulfilling Expectations and Fluctuations in Aggregate Demand," NBER Working Papers 3361, National Bureau of Economic Research, Inc.
  15. Marimon, R. & Spear, S. & Sunder, S., 1991. "Expectationally-Driven Market Volatility: An Experimental Study," GSIA Working Papers 1991-3, Carnegie Mellon University, Tepper School of Business.
  16. Ellen McGrattan & Richard Rogerson & Randall Wright, 1993. "Household production and taxation in the stochastic growth model," Staff Report 166, Federal Reserve Bank of Minneapolis.
  17. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  18. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  19. Michael Woodford, 1990. "Equilibrium Models of Endogenous Fluctuations: an Introduction," NBER Working Papers 3360, National Bureau of Economic Research, Inc.
  20. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62 National Bureau of Economic Research, Inc.
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