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Demand shocks and economic fluctuations

  • Yi Wen
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This paper studies conditions under which demand-side shocks can generate realistic business cycles in RBC models. Although highly persistent demand shocks are necessary for generating procyclical investment, variable capacity utilization and habit formation can reduce the required degree of persistence.

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File URL: http://research.stlouisfed.org/wp/2006/2006-011.pdf
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-011.

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Date of creation: 2006
Date of revision:
Publication status: Published in Economics Letters, March 2006, 90(3), pp. 373-83
Handle: RePEc:fip:fedlwp:2006-011
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  1. Weder, Mark, 2001. "The Great Demand Depression," CEPR Discussion Papers 3067, C.E.P.R. Discussion Papers.
  2. Wen, Yi, 2002. "What Does It Take to Explain Procyclical Productivity," Working Papers 02-14, Cornell University, Center for Analytic Economics.
  3. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  4. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
  5. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  6. Benhabib, Jess & Wen, Yi, 2001. "Indeterminacy, Aggregate Demand, and the Real Business Cycle," Working Papers 01-09r, Cornell University, Center for Analytic Economics.
  7. Wen, Yi, 2001. "Demand-Driven Business Cycles: Explaining Domestic and International Comovements," Working Papers 01-18, Cornell University, Center for Analytic Economics.
  8. Robert E. Hall, 1997. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
  9. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  10. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  11. Nakajima, Tomoyuki, 2005. "A business cycle model with variable capacity utilization and demand disturbances," European Economic Review, Elsevier, vol. 49(5), pages 1331-1360, July.
  12. Wen, Yi, 2002. "Fickle Consumers versus Random Technology: Explaining Domestic and International Comovements," Working Papers 02-01, Cornell University, Center for Analytic Economics.
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