The spirit of capitalism and expectation-driven business cycles
AbstractWhile news shocks are believed to be instrumental in explaining business cycles, many existing models fail to predict a boom in consumption, investment, employment, output and asset prices in response to good news about future productivity. A model with the intrinsic desire for wealth is shown to generate the aforementioned responses. A news-driven boom is explained predominantly by an expansion of labor supply and is characterized by the falling real wage. The simulated model not only captures well conventional business cycle statistics, but also reproduces countercyclical real returns and hump-shaped responses of hours and output to an unexpected technology shock.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 57 (2010)
Issue (Month): 6 (September)
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers 0804E, University of Ottawa, Department of Economics.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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