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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.

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File URL: http://mpra.ub.uni-muenchen.de/2848/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2848.

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Date of creation: Oct 2006
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Handle: RePEc:pra:mprapa:2848

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Related research

Keywords: Social interaction; Business cycles; Growth models; Nonlinear dynamics and Chaos; Discrete choice;

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References

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  1. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE.
  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. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
  4. 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, 02.
  5. Gomes, Orlando, 2006. "Too much of a good thing: endogenous business cycles generated by bounded technological progress," MPRA Paper 2845, University Library of Munich, Germany.
  6. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  7. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  8. Cellarier, Laurent, 2006. "Constant gain learning and business cycles," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 51-85, March.
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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, vol. 37(1), pages 137-158, April.

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