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Demand Induced Fluctuations

Author

Listed:
  • Zhen Huo

    (Yale University)

  • Jose-Victor Rios-Rull

    (University of Pennsylvania)

Abstract

We build a variation of the neoclassical growth model in which households increased desire to save generate recessions. Our economy features three departures from the standard model: (1) goods markets (for nontradables) require active search from households wherein increases in consumption expenditures increase measured productivity; (2) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (3) labor markets have Nash bargaining wage setting and Mortensen-Pissarides search and matching frictions labor markets. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks. (Copyright: Elsevier)

Suggested Citation

  • Zhen Huo & Jose-Victor Rios-Rull, 2020. "Demand Induced Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 99-117, August.
    • Handle: RePEc:red:issued:20-167
    DOI: 10.1016/j.red.2020.06.011
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    2. Laurentiu Guinea & Luis A. Puch & Jesús Ruiz, 2019. "News-driven housing booms: Spain vs. Germany," Documentos de Trabajo del ICAE 2019-32, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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