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On Expectations-Driven Business Cycles in Economies with Production Externalities: A Comment

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  • Guo, Jang-Ting
  • Sirbu, Anca-Ioana
  • Suen, Richard M. H.

Abstract

Eusepi (2009, International Journal of Economic Theory 5, pp. 9-23) analytically finds that a one-sector real business cycle model may exhibit positive co-movement between consumption and investment when the equilibrium wage-hours locus is positively-sloped and steeper than the household's labor supply curve. However, we show that this condition does not imply expectations-driven business cycles will emerge in Eusepi's model. Specifically, a positive news shock about future productivity improvement leads to an aggregate recession whereby output, employment, consumption and investment all fall in the announcement period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24989.

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Date of creation: Sep 2010
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Handle: RePEc:pra:mprapa:24989

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Keywords: Expectations-Driven Business Cycles; Production Externalities.;

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  1. Nir Jaimovich & Sergio Rebelo, 2008. "News and Business Cycles in Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(8), pages 1699-1711, December.
  2. Beaudry, Paul & Portier, Franck, 2007. "When can changes in expectations cause business cycle fluctuations in neo-classical settings?," Journal of Economic Theory, Elsevier, vol. 135(1), pages 458-477, July.
  3. 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.
  4. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Chapters, in: Enhancing Productivity (NBER-CEPR-TCER-Keio conference) National Bureau of Economic Research, Inc.
  5. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
  6. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
  7. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
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Cited by:
  1. Oscar Pavlov & Mark Weder, 2011. "Countercyclical Markups and News-Driven Business Cycles," School of Economics Working Papers 2011-28, University of Adelaide, School of Economics.
  2. Jang-Ting Guo & Anca-Ioana Sirbu & Mark Weder, 2012. "News about Aggregate Demand and the Business Cycle," Working Papers 12-02, Department of Economics, West Virginia University.
  3. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.

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