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Animal spirits as an engine of boom-busts and throttle of productivity growth

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  • Gunn, Christopher M.

Abstract

The news-shock literature interprets empirical news-shock identifications as signals about future productivity. Under this view, changes in productivity cause changes in expectations. I investigate an alternative interpretation whereby changes in expectations cause changes in productivity. I present a model where firms adopt the technology of a deterministic frontier, and where self-fulfilling expectational-shocks unleash a frenzy of adoption through which firms increase productivity. Consistent with the news evidence, stock prices and aggregate activity boom, yet TFP increases with a lag. Simulations using i.i.d. expectational-shocks yield moments consistent with the data, and qualitatively capture both high-frequency boom-busts and lower-frequency fluctuations. Finally, estimating a Beaudry–Portier style VECM on the simulated model output to identify a “news shock” recovers impulse response functions largely consistent with the Beaudry and Portier (2006) results.

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  • Gunn, Christopher M., 2015. "Animal spirits as an engine of boom-busts and throttle of productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 24-53.
    • Handle: RePEc:eee:dyncon:v:57:y:2015:i:c:p:24-53
    DOI: 10.1016/j.jedc.2015.05.001
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The productivity slump
      by chris dillow in Stumbling and Mumbling on 2014-06-11 18:00:20
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      by chris in Stumbling and Mumbling on 2018-09-25 10:15:39
    4. Productivity in late capitalism
      by chris in Stumbling and Mumbling on 2021-10-18 13:27:02

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    Cited by:

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    2. Christoph Görtz & Christopher Gunn & Thomas Lubik, 2018. "Taking Stock of TFP News Shocks: The Inventory Comovement Puzzle," Carleton Economic Papers 18-05, Carleton University, Department of Economics, revised 14 Jul 2018.

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    More about this item

    Keywords

    Expectations-driven business cycle; Technological adoption; Sunspot; Multiple equilibria; News shock; Intangible capital;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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