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

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Author Info

  • Jang-Ting Guo

    ()
    (Department of Economics, University of California Riverside)

  • Anca-Ioana Sirbu

    ()
    (Department of Economics, University of California Riverside)

  • Richard M. H. Suen

    ()
    (Department of Economics, University of California Riverside)

Abstract

Eusepi (2009, International Journal of Economic Theory 5, pp. 9-23) analytically Önds that a one-sector real business cycle model may exhibit positive co-movement between con- sumption and investment when the equilibrium wage-hours locus is positively-sloped and steeper than the householdiÌs labor supply curve. However, we show that this condition does not imply expectations-driven business cycles will emerge in EusepiiÌs model. SpeciÖcally, 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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File URL: http://economics.ucr.edu/repec/ucr/wpaper/10-09.pdf
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Bibliographic Info

Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 201009.

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Date of creation: Sep 2010
Date of revision: Sep 2010
Handle: RePEc:ucr:wpaper:201009

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

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References

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  1. Nir Jaimovich & Sergio Rebelo, 2007. "News and Business Cycles in Open Economies," Discussion Papers 07-016, Stanford Institute for Economic Policy Research.
  2. 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.
  3. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  4. 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.
  5. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc.
  6. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  7. 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.
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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. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  3. Jang-Ting Guo & Anca-Ioana Sirbu & Mark Weder, 2012. "News about Aggregate Demand and the Business Cycle," School of Economics Working Papers 2012-01, University of Adelaide, School of Economics.

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