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Fickle Consumers versus Random Technology: Explaining Domestic and International Comovements

  • Wen, Yi

    (Cornell U)

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Viewing technology shocks as the primary source of business cycles has resulted in many "puzzles" or counter-factual predictions of general equilibrium theory with respect to international movements of output, consumption, investment, employment, and net exports (Backus, Kehoe and Kydland, JPE 1992). There are few puzzles, however, when aggregate demand rather than aggregate supply is the source of uncertainty. In particular, the stylized openeconomy business cycle regularities are what standard general equilibrium theory predicts once the usual suspect--fickle consumers--is held responsible for the business cycle. The finding that preference shocks explain both domestic and international business cycles suggests the possibility of a unified explanation of the business cycle and the seasonal cycle, as both types of fluctuations share a common source: recurrent shifts in preferences.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 02-01.

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Date of creation: Apr 2002
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Handle: RePEc:ecl:corcae:02-01
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  1. Marianne Baxter & Dorsey Farr, 2001. "Variable Factor Utilization and International Business Cycles," NBER Working Papers 8392, National Bureau of Economic Research, Inc.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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  4. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
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  6. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
  7. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  8. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
  9. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  10. Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
  11. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  12. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
  13. Barsky, Robert B & Miron, Jeffrey A, 1989. "The Seasonal Cycle and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 503-34, June.
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