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Pigouvian Cycles

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  • Faccini, Renato
  • Melosi, Leonardo

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.

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

    1. Ryan Chahrour & Sanjay Chugh & Tristan Potter, 2020. "Anticipated Productivity and the Labor Market," Boston College Working Papers in Economics 992, Boston College Department of Economics.

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