Explaining speculative expansions
AbstractIn this paper we use a modified neoclassical business cycle model to test two competing explanations of the expansion of the 1990s. The model can have indeterminate, multiple equilibria that give rise to expectation-driven business cycles. We fit into the model series of estimated speculative and productivity shocks and compare its predictions with empirical data. Our results suggest that the speculation hypothesis has more explanatory power than the productivity hypothesis in terms of matching the data. Speculative behavior of investors, therefore, may have contributed to the investment boom, the prolonged expansion, and the subsequent recession of the period 1991-2001.
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Bibliographic InfoPaper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2003-02.
Length: 39 pages
Date of creation: 16 Jun 2003
Date of revision:
Neoclassical Business Cycle; Speculative Behavior; Productivity Shocks;
Other versions of this item:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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- Lilia Karnizova, 2013. "Letting the speculative and the news views of the Japanese business cycle compete," Economics Bulletin, AccessEcon, vol. 33(2), pages 1146-1158.
- Karnizova Lilia, 2012.
"News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 12(1), pages 1-50, June.
- Lilia Karnizova, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," Working Papers 1201E, University of Ottawa, Department of Economics.
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