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Countercyclical Markups and News-Driven Business Cycles

  • Oscar Pavlov

    (School of Economics, University of Adelaide)

  • Mark Weder

    ()

    (School of Economics, University of Adelaide)

The standard one-sector real business cycle model is unable to generate expectations-driven business cycles. The current paper shows that this conundrum can be solved by adding countercyclical markups and modest capital adjustment costs.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-28.pdf
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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-28.

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Length: 16 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-28
Contact details of provider: Postal:
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Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/

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  1. Jaimovich, Nir & Rebelo, Sérgio, 2006. "Can News About the Future Drive the Business Cycle?," CEPR Discussion Papers 5877, C.E.P.R. Discussion Papers.
  2. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Chapters, in: Enhancing Productivity (NBER-CEPR-TCER-Keio conference) National Bureau of Economic Research, Inc.
  3. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2011. "Monetary Policy and Stock Market Booms," Working Papers 2011-005, Banco Central de Reserva del Perú.
  4. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc.
  5. Stephanie Schmitt-Grohe, 1995. "Comparing four models of aggregate fluctuations due to self-fulfilling expectations," Finance and Economics Discussion Series 95-17, Board of Governors of the Federal Reserve System (U.S.).
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  7. Robert J. Barro & Robert G. King, 1984. "Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 817-839.
  8. 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.
  9. 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.
  10. Oscar Pavlov & Mark Weder, 2011. "Variety Matters," CDMA Working Paper Series 201106, Centre for Dynamic Macroeconomic Analysis.
  11. Guo, Jang-Ting & Sirbu, Anca-Ioana & Suen, Richard M. H., 2010. "On Expectations-Driven Business Cycles in Economies with Production Externalities: A Comment," MPRA Paper 24989, University Library of Munich, Germany.
  12. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
  13. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  14. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  15. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June.
  16. Stefano Eusepi & Bruce Preston, 2009. "Labor Supply Heterogeneity and Macroeconomic Co-movement," NBER Working Papers 15561, National Bureau of Economic Research, Inc.
  17. Hornstein, Andreas, 1993. "Monopolistic competition, increasing returns to scale, and the importance of productivity shocks," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 299-316, June.
  18. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
  19. Pengfei Wang, 2012. "Understanding Expectation‐Driven Fluctuations: A Labor‐Market Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 487-506, 03.
  20. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
  21. Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers 0804E, University of Ottawa, Department of Economics.
  22. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  23. Nir Jaimovich, 2004. "Firm Dynamics, Markup Variations, and the Business Cycle," Discussion Papers 07-013, Stanford Institute for Economic Policy Research, revised Mar 2007.
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