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Granger causality and equilibrium business cycle theory

Author

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  • Yi Wen

Abstract

Postwar U.S. data show that consumption growth "Granger-causes" output and investment growth, which is puzzling if technology is the driving force of the business cycle. The author asks whether general equilibrium models with information frictions and non-technology shocks can rationalize the observed causal relationships. His conclusion is they cannot.

Suggested Citation

  • Yi Wen, 2007. "Granger causality and equilibrium business cycle theory," Review, Federal Reserve Bank of St. Louis, issue May, pages 195-206.
  • Handle: RePEc:fip:fedlrv:y:2007:i:may:p:195-206:n:v.89no.3
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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    9. Stephanie Schmitt-Grohe, 2000. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 90(5), pages 1136-1159, December.
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    13. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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    16. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
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    Cited by:

    1. Chikán, Attila & Kovács, Erzsébet & Matyusz, Zsolt & Sass, Magdolna & Vakhal, Péter, 2016. "Long-term trends in inventory investment in traditional market and post-socialist economies," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 14-23.
    2. Dressler, Scott J. & Li, Victor E., 2009. "Inside money, credit, and investment," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 970-984, April.

    More about this item

    Keywords

    Business cycles;

    JEL classification:

    • 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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