Advanced Search
MyIDEAS: Login to save this paper or follow this series

When Can Changes in Expectations Cause Business Cycle Fluctuations?

Contents:

Author Info

  • Franck Portier
  • Paul Beaudry

Abstract

ABSTRACT Business cycle fluctuations are generally associated with positive co-movement between consumption, investment and employment. In this paper we examine when such positive co-movement can arise in market settings as the result of changes in expectations. We show that most of the standard neo-classical models used in the macro literature can not support such phenomena; but that such phenomena is possible in a perfect market setting if multi-product firms are present. The key characteristic which we isolate as giving rise to the possibility of expectation driven fluctuations is that intermediate good producers exhibit internal cost complementarity when supplying goods to different sectors of the economy. Our analysis thereby identifies technological conditions under which business cycles may arise as a purely demand driven phenomena, as in traditional Keynesian models, without the need to invoke any market imperfections such as sticky prices, imperfect competition, increasing returns to scale or externatilities. In this sense, our analysis offers a potentially robust explanation to why market economies may exhibit business cycle fluctuations driven by changes in expectations.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://fpj.portier.free.fr/wip/expect.sed.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Christian Zimmermann)
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 865.

as in new window
Length:
Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:865

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords: expectations; business cycles;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed004:865. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.