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Informational Cycles

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  • Joseph Zeira

Abstract

This paper shows that if demand is unknown and continuously changing and if investment is costly, then output and investment are cyclical. The cycles are generated by changes in information over time, as investors increase production and thus accumulate more information about demand. These are, therefore, informational cycles. The paper also shows that the frequency of cycles depends positively on profitability and negatively on the rate of interest.

Suggested Citation

  • Joseph Zeira, 1994. "Informational Cycles," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 31-44.
  • Handle: RePEc:oup:restud:v:61:y:1994:i:1:p:31-44.
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    File URL: http://hdl.handle.net/10.2307/2297875
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    Cited by:

    1. Süssmuth, Bernd, 2000. "Endogenously-Timed Herding And The Synchronization Of Investment Cycles," Discussion Papers in Economics 24, University of Munich, Department of Economics.
    2. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    3. Vettas, Nikolaos, 1997. "Entry and exit under demand uncertainty," Economics Letters, Elsevier, vol. 57(2), pages 227-234, December.
    4. Fishman, Arthur & Rob, Rafael, 1998. "Experimentation and Competition," Journal of Economic Theory, Elsevier, vol. 78(2), pages 299-320, February.
    5. Joel Peress, 2014. "Learning from Stock Prices and Economic Growth," Review of Financial Studies, Society for Financial Studies, vol. 27(10), pages 2998-3059.
    6. Schivardi, Fabiano, 2003. "Reallocation and learning over the business cycle," European Economic Review, Elsevier, vol. 47(1), pages 95-111, February.
    7. Peress, Joel, 2010. "The tradeoff between risk sharing and information production in financial markets," Journal of Economic Theory, Elsevier, vol. 145(1), pages 124-155, January.
    8. Beaudry, Paul & Gonzalez, Francisco M., 2003. "An equilibrium analysis of information aggregation and fluctuations in markets with discrete decisions," Journal of Economic Theory, Elsevier, vol. 113(1), pages 76-103, November.
    9. Huanxing Yang, 2010. "Information aggregation and investment cycles with strategic complementarity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 281-311, May.
    10. Horii, Ryo & Ono, Yoshiyasu, 2009. "Information Cycles and Depression in a Stochastic Money-in-Utility Model," MPRA Paper 13485, University Library of Munich, Germany.
    11. Creane, Anthony, 1996. "An informational externality in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 331-344, May.
    12. Flavio Toxvaerd, 2005. "Record Breaking and Temporal Clustering," Discussion Paper Series dp395, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    13. Bertocchi, Graziella & Spagat, Michael, 1998. "Growth under uncertainty with experimentation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(2), pages 209-231, September.
    14. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
    15. Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
    16. Veldkamp, Laura L., 2005. "Slow boom, sudden crash," Journal of Economic Theory, Elsevier, vol. 124(2), pages 230-257, October.
    17. Ryo Horii & Yoshiyasu Ono, 2005. "Financial Crisis and Recovery: Learning-based Liquidity Preference Fluctuations," Macroeconomics 0504016, EconWPA.
    18. Cheremukhin, Anton & Tutino, Antonella, 2016. "Information rigidities and asymmetric business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 142-158.
    19. Jones, Robert & Newman, Geoffrey, 1995. "Adaptive Capital, Information Depreciation and Schumpeterian Growth," Economic Journal, Royal Economic Society, vol. 105(431), pages 897-915, July.
    20. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.

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