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Fickle Consumers versus Random Technology: Explaining Domestic and International Comovements

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  • Wen, Yi

    (Cornell U)

Abstract

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.

Suggested Citation

  • Wen, Yi, 2002. "Fickle Consumers versus Random Technology: Explaining Domestic and International Comovements," Working Papers 02-01, Cornell University, Center for Analytic Economics.
  • Handle: RePEc:ecl:corcae:02-01
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    References listed on IDEAS

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    Cited by:

    1. Mark Weder, 2006. "Some Observations on the Great Depression in Germany," German Economic Review, Verein für Socialpolitik, vol. 7, pages 113-133, February.
    2. Wen, Yi, 2006. "Demand shocks and economic fluctuations," Economics Letters, Elsevier, vol. 90(3), pages 378-383, March.
    3. Wen Yi, 2004. "What Does It Take to Explain Procyclical Productivity?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-40, June.
    4. Wen, Yi, 2005. "Understanding the inventory cycle," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1533-1555, November.
    5. Wen, Yi, 2007. "By force of demand: Explaining international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 1-23, January.
    6. Wen, Yi, 2003. "Understanding the Inventory Cycle: I. Partial Equilibrium Analysis," Working Papers 03-08, Cornell University, Center for Analytic Economics.

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