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Real business cycles and the animal spirits hypothesis in a CIA economy

Author

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  • Barinci, Jean-Paul
  • Chéron, Arnaud

Abstract

This paper examines the dynamical properties of a one-sector cash-indvance constraint model with constant returns to scale. Its aim is to overcome some of the difficulties encountered by earlier models in establishing the empirical relevance of indeterminacy and sunspots. It is first established that, in opposition to available results, indeterminacy occurs for values of the intertemporal elasticity of substitution in consumption consistent with the bulk of empirical estimates. It is then shown that sunspot shocks generate procyclical movements in consumption. Lastly, allowing both beliefs and technological disturbances, the model is found to perform as well as real sunspot models with increasing returns to scale in matching the business cycle.

Suggested Citation

  • Barinci, Jean-Paul & Chéron, Arnaud, 2001. "Real business cycles and the animal spirits hypothesis in a CIA economy," CEPREMAP Working Papers (Couverture Orange) 0110, CEPREMAP.
  • Handle: RePEc:cpm:cepmap:0110
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    References listed on IDEAS

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    7. Boucekkine, Raouf & Germain, Marc & Licandro, Omar & Magnus, Alphonse, 1998. "Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-384, December.
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    11. Martin Neil Baily, 1981. "Productivity and the Services of Capital and Labor," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 1-66.
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    13. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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