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Countercyclical Markups and News-Driven Business Cycles

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Author Info

  • Oscar Pavlov

    (School of Economics, University of Adelaide)

  • Mark Weder

    ()
    (School of Economics, University of Adelaide)

Abstract

The standard one-sector real business cycle model is unable to generate expectations-driven business cycles. The current paper shows that this conundrum can be solved by adding countercyclical markups and modest capital adjustment costs.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-28.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-28.

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Length: 16 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-28

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Keywords: expectations-driven business cycles; markups;

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References

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  1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
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  10. Paul Beaudry & Franck Portier, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?," NBER Working Papers 10776, National Bureau of Economic Research, Inc.
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  16. Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
  17. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
  18. Stefano Eusepi*, 2009. "On expectations-driven business cycles in economies with production externalities," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 9-23.
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  20. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  21. Oscar Pavlov & Mark Weder, 2011. "Variety Matters," School of Economics Working Papers 2011-23, University of Adelaide, School of Economics.
  22. Stephanie Schmitt-Grohe, 1995. "Comparing four models of aggregate fluctuations due to self-fulfilling expectations," Finance and Economics Discussion Series 95-17, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Beaudry, Paul & Portier, Franck, 2013. "News Driven Business Cycles: Insights and Challenges," CEPR Discussion Papers 9624, C.E.P.R. Discussion Papers.
  2. Gunes Kamber & Konstantinos Theodoridis & Christoph Thoenissen, 2014. "News-driven business cycles in small open economies," CAMA Working Papers 2014-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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