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Pigouvian Cycles

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  • Melosi, Leonardo
  • Faccini, Renato

Abstract

Low-frequency variations in current and expected unemployment rates are important to identify TFP news shocks and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by changes in expectations unrelated to TFP fundamentals. The model predicts that the start (end) of most U.S. recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.

Suggested Citation

  • Melosi, Leonardo & Faccini, Renato, 2018. "Pigouvian Cycles," CEPR Discussion Papers 13370, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13370
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    Cited by:

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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