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Demand shocks and economic fluctuations

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  • Yi Wen
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Abstract

This paper studies conditions under which demand-side shocks can generate realistic business cycles in RBC models. Although highly persistent demand shocks are necessary for generating procyclical investment, variable capacity utilization and habit formation can reduce the required degree of persistence.

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File URL: http://research.stlouisfed.org/wp/2006/2006-011.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-011.

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Date of creation: 2006
Date of revision:
Publication status: Published in Economics Letters, March 2006, 90(3), pp. 373-83
Handle: RePEc:fip:fedlwp:2006-011

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Keywords: Business cycles;

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References

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  1. Benhabib, Jess & Wen, Yi, 2004. "Indeterminacy, aggregate demand, and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 503-530, April.
  2. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S223-50, January.
  3. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  4. Wayne E. Ferson & George M. Constantinides, 1992. "Habit Persistence and Durability in Aggregate Consumption: Empirical Tests," NBER Working Papers 3631, National Bureau of Economic Research, Inc.
  5. Wen, Yi, 2002. "What Does It Take to Explain Procyclical Productivity," Working Papers 02-14, Cornell University, Center for Analytic Economics.
  6. Weder, Mark, 2001. "The Great Demand Depression," CEPR Discussion Papers 3067, C.E.P.R. Discussion Papers.
  7. repec:wop:humbsf:2001-53 is not listed on IDEAS
  8. Wen, Yi, 2001. "Demand-Driven Business Cycles: Explaining Domestic and International Comovements," Working Papers 01-18, Cornell University, Center for Analytic Economics.
  9. Wen, Yi, 2002. "Fickle Consumers versus Random Technology: Explaining Domestic and International Comovements," Working Papers 02-01, Cornell University, Center for Analytic Economics.
  10. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  11. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  12. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  13. Nakajima, Tomoyuki, 2005. "A business cycle model with variable capacity utilization and demand disturbances," European Economic Review, Elsevier, vol. 49(5), pages 1331-1360, July.
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Citations

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Cited by:
  1. Andrea Colciago & Federico Etro, 2007. "Real Business Cycles with Cournot Competition and Endogenous Entry," Working Papers 135, University of Milano-Bicocca, Department of Economics, revised Feb 2008.
  2. Lester, Robert & Pries, Michael & Sims, Eric, 2014. "Volatility and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 17-36.
  3. Yi Wen, 2008. "Inventories, liquidity, and the macroeconomy," Working Papers 2008-045, Federal Reserve Bank of St. Louis.
  4. Addessi, William & Busato, Francesco, 2011. "Preference shifts between consumption goods and sectoral changes," Economics Letters, Elsevier, vol. 111(3), pages 213-216, June.

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