Shocks and Business Cycles
AbstractA popular theory of business cycles is that they are driven by animal spirits: shifts in expectations brought on by sunspots. Two prominent examples are Diamond (JPE, 1982) and Howitt and McAfee (AER, 1992). We show that these models have unique equilibria if there are payoff shocks of any size. At critical junctures, a small negative shock can cause the economy to slide into a recession. Once this happens, a sustained sequence of positive shocks is needed to spark an expansion.
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Bibliographic InfoPaper provided by Tel Aviv in its series Papers with number 2001-10.
Length: 20 pages
Date of creation: 2001
Date of revision:
Contact details of provider:
Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Web page: http://econ.tau.ac.il/research/foerder.asp
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GAMES ; FLUCTUATIONS ; BUSINESS CYCLES;
Other versions of this item:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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