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Anticipation and Real Business Cycles

Author

Listed:
  • David R.F. Love

    () (Department of Economics, Brock University)

  • Jean-Francois Lamarche

    () (Department of Economics, Brock University)

Abstract

Standard real business cycle (RBC) theory assumes that changes in economic conditions are unanticipated. We argue that upcoming changes are often well anticipated. Employing the RBC methodology to evaluate models when changes in economic conditions are fully anticipated provides evidence on the relevance of this alternative. We find that anticipation effects i) reduce the exogenous volatility required for the models to explain output folatility, ii) improves or leaves unchanged, the model predictions for the data moments studied and, iii) can go some way to providing realistic internal propagation mechanisms within theoretical frameworks.

Suggested Citation

  • David R.F. Love & Jean-Francois Lamarche, 2004. "Anticipation and Real Business Cycles," Working Papers 0703, Brock University, Department of Economics, revised Sep 2007.
  • Handle: RePEc:brk:wpaper:0703
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    File URL: https://brocku.ca/repec/pdf/0703.pdf
    File Function: First version, Nov. 2004
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    References listed on IDEAS

    as
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    Cited by:

    1. David R.F. Love, 2007. "Aggregate Comovements, Anticipation, and Business Cycles," Working Papers 0704, Brock University, Department of Economics, revised Jun 2007.

    More about this item

    Keywords

    Anticipation; Real Business Cycles; Impulse Responses;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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