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Learning about Others Actions and the Investment Accelerator

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  • Daron Acemoglu

Abstract

A General Equilibrium model of investment is constructed in which the pay-offs of firms depend on each other's actions. It is shown that when these actions are unobservable but aggregate output is in the information set of the agents; it acts as a signal. The implication is that output will lead investment over the business cycle. This gives a theory of the Rational Expectations Investment Accelerator. Learning also changes the cyclical behaviour of the endogenous variables and leads to a loss of output and efficiency. The inefficiency depends on the amount of noise in the system thus reducing fluctuations can have first-order welfare effects. It is also shown that the introduction of a stock market will not alter the qualitative conclusion of the paper. The intuition of this paper for the investment accelerator also suggests that an "employer accelerator" might exist. An economic investigation of the US and UK data gives support to these accelerators. Also, the model predicts, investment is less responsive to output when its conditional variance is higher.

Suggested Citation

  • Daron Acemoglu, 1992. "Learning about Others Actions and the Investment Accelerator," CEP Discussion Papers dp0072, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0072
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    Cited by:

    1. George-Marios Angeletos & Alessandro Pavan, 2004. "Transparency of Information and Coordination in Economies with Investment Complementarities," American Economic Review, American Economic Association, vol. 94(2), pages 91-98, May.
    2. Fioretti, Guido, 2006. "Recognising investment opportunities at the onset of recoveries," Research in Economics, Elsevier, vol. 60(2), pages 69-84, June.
    3. Rodriguez Mora, Jose V. & Schulstad, Paul, 2007. "The effect of GNP announcements on fluctuations of GNP growth," European Economic Review, Elsevier, vol. 51(8), pages 1922-1940, November.
    4. José Jorge & Joana Rocha, 2016. "Financial Intermediation in Economies with Investment Complementarities," CEF.UP Working Papers 1603, Universidade do Porto, Faculdade de Economia do Porto.
    5. Christopher Baum & Neslihan Ozkan & Mustafa Caglayan, 2003. "Sectoral fluctuations in U.K. firms' investment expenditures," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-10.
    6. Blackley, Paul R., 2000. "Sources of sectoral fluctuations in business fixed investment," Journal of Economics and Business, Elsevier, vol. 52(6), pages 473-484.
    7. José V. Rodríguez Mora, 1995. "Shared knowledge," Economics Working Papers 144, Department of Economics and Business, Universitat Pompeu Fabra.
    8. George-Marios Angeletos & Alessandro Pavan, 2005. "Efficiency and Welfare with Complementarities and Asymmetric Information," NBER Working Papers 11826, National Bureau of Economic Research, Inc.

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