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Shocks and Business Cycles

Author

Listed:
  • Frankel, D.M.

Abstract

A popular theory of business cycles is that they are driven by animal spirits: shifts in expectations brought on by sunspots. Two prominent examples are Diamond (JPE, 1982) and Howitt and McAfee (AER, 1992). We show that these models have unique equilibria if there are payoff shocks of any size. At critical junctures, a small negative shock can cause the economy to slide into a recession. Once this happens, a sustained sequence of positive shocks is needed to spark an expansion.

Suggested Citation

  • Frankel, D.M., 2001. "Shocks and Business Cycles," Papers 2001-10, Tel Aviv.
  • Handle: RePEc:fth:teavfo:2001-10
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    Citations

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    Cited by:

    1. Frankel, David M., 2012. "Recurrent crises in global games," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 309-321.
    2. David M. Frankel, 2010. "Rent Seeking and Economic Fragility," Levine's Bibliography 661465000000000159, UCLA Department of Economics.
    3. Daisuke Oyama, 2004. "Booms And Slumps In A Game Of Sequential Investment With The Changing Fundamentals," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 311-320.
    4. Levin Jonathan, 2009. "The Dynamics of Collective Reputation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, August.
    5. Frankel, David M., 2010. "Shocks and Crises in the Long Run," Staff General Research Papers Archive 31687, Iowa State University, Department of Economics.
    6. repec:eee:mateco:v:73:y:2017:i:c:p:13-33 is not listed on IDEAS
    7. Steiner, Jakub, 2008. "Coordination cycles," Games and Economic Behavior, Elsevier, vol. 63(1), pages 308-327, May.
    8. Guimaraes, Bernardo & Pereira, Ana Elisa, 2017. "Dynamic coordination among heterogeneous agents," Journal of Mathematical Economics, Elsevier, vol. 73(C), pages 13-33.
    9. repec:eee:jetheo:v:170:y:2017:i:c:p:112-144 is not listed on IDEAS
    10. Guimarães, Bernardo de Vasconcellos & Machado, Caio Henrique & Pereira, Ana Elisa Gonçalves, 2017. "Dynamic coordination with timing frictions: theory and applications," Textos para discussão 461, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    11. Guimaraes, Bernardo & Pereira, Ana Elisa, 2016. "QWERTY is efficient," Journal of Economic Theory, Elsevier, vol. 163(C), pages 819-825.
    12. repec:eee:macchp:v2-1065 is not listed on IDEAS

    More about this item

    Keywords

    GAMES ; FLUCTUATIONS ; BUSINESS CYCLES;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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