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Expectation Driven Business Cycles with Limited Enforcement

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  • Walentin, Karl

    ()
    (Research Department, Central Bank of Sweden)

Abstract

We explore the implications of shocks to expected future productivity. In a setting with limited enforcement of financial contracts, firms have to post collateral to obtain external finance. In a real one-sector model with this type of "collateral constraint", positive news about future productivity implies an increase in stock prices, as well as the other properties of an expectation-driven business cycle. Furthermore, these properties are obtained with standard consumption preferences and capital adjustment costs.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 229.

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Length: 26 pages
Date of creation: 01 Apr 2009
Date of revision: 01 Oct 2011
Handle: RePEc:hhs:rbnkwp:0229

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Related research

Keywords: business cycles; news shocks; limited enforcement; stock prices;

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Cited by:
  1. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  2. Lambertini, Luisa & Mendicino, Caterina & Punzi, Maria Teresa, 2010. "Expectations-Driven Cycles in the Housing Market," MPRA Paper 26128, University Library of Munich, Germany.
  3. Per Krusell & Alisdar McKay, 2010. "News shocks and business cycles," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 373-397.
  4. Guido Lorenzoni & Karl Walentin, 2007. "Financial Frictions, Investment and Tobin's q," NBER Working Papers 13092, National Bureau of Economic Research, Inc.
  5. Christoph Görtz & John D. Tsoukalas, 2013. "Sector Specific News Shocks in Aggregate and Sectoral Fluctuations," CESifo Working Paper Series 4269, CESifo Group Munich.

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