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On expectations-driven business cycles in economies with production externalities: A comment

  • Jang-Ting Guo
  • Anca-Ioana Sirbu
  • Richard M.H. Suen

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://hdl.handle.net/10.1111/j.1742-7363.2012.00193.x
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Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 8 (2012)
Issue (Month): 3 (09)
Pages: 313-319

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Handle: RePEc:bla:ijethy:v:8:y:2012:i:3:p:313-319
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  1. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers 3844, C.E.P.R. Discussion Papers.
  2. Beaudry, Paul & Portier, Franck, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?," IDEI Working Papers 304, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Jaimovich, Nir & Rebelo, Sérgio, 2007. "News and Business Cycles in Open Economies," CEPR Discussion Papers 6520, C.E.P.R. Discussion Papers.
  4. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  5. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  6. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
  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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