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Can social interaction contribute to explain business cycles?

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  • Gomes, Orlando

Abstract

Recent literature has been able to include into standard optimal growth models some hypotheses that allow for the generation of endogenous long run fluctuations. This paper contributes to this endogenous business cycles literature by considering social interactions. In the proposed model, individuals can choose, under a discrete choice rule, to which social group they prefer to belong to. This selection process is constrained essentially by the dimension of the group, which is the main determinant regarding the utility individuals withdraw from social interaction. The proposed setup implies the presence of cycles and chaotic motion describing the evolution of group dimension over time. Because being member of a group involves costs to households, the inclusion of these costs in a standard Ramsey growth model will imply that endogenous cycles might arise in the time trajectory of the growth rate of output.

Suggested Citation

  • Gomes, Orlando, 2006. "Can social interaction contribute to explain business cycles?," MPRA Paper 2848, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2848
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    References listed on IDEAS

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    1. Entorf, Horst & Lauk, Martina, 2006. "Peer Effects, Social Multipliers and Migrants at School: An International Comparison," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 36777, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Christiano, Lawrence J. & G. Harrison, Sharon, 1999. "Chaos, sunspots and automatic stabilizers," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 3-31, August.
    3. Gomes, Orlando, 2008. "Too much of a good thing: Endogenous business cycles generated by bounded technological progress," Economic Modelling, Elsevier, vol. 25(5), pages 933-945, September.
    4. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 619-652.
    5. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE.
    6. Bisin, Alberto & Horst, Ulrich & Ozgur, Onur, 2006. "Rational expectations equilibria of economies with local interactions," Journal of Economic Theory, Elsevier, vol. 127(1), pages 74-116, March.
    7. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
    8. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2004. "Social Interaction and Stock-Market Participation," Journal of Finance, American Finance Association, vol. 59(1), pages 137-163, February.
    9. Cellarier, Laurent, 2006. "Constant gain learning and business cycles," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 51-85, March.
    10. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 633-664, November.
    11. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
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    Cited by:

    1. Angelo Antoci & Mauro Sodini & Luca Zarri, 2014. "Relational consumption and nonlinear dynamics in an overlapping generations model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 137-158, April.

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    More about this item

    Keywords

    Social interaction; Business cycles; Growth models; Nonlinear dynamics and Chaos; Discrete choice;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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