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A Sunspot Paradox

Author

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  • Hintermaier, Thomas

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

Abstract

Calibrated models of the business cycle typically assume a certain frequency at which economic agents take decisions. In this paper I show that the local stability properties of dynamic stochastic general equilibrium macro models may depend on the length of a period in the model economy. This leads to the following paradoxical situation: For given parameters, and in particular those assigning values of imperfections in the economy, the economy may be driven by sunspots at some frequencies while sunspots can have no impact at other frequencies.

Suggested Citation

  • Hintermaier, Thomas, 2004. "A Sunspot Paradox," Economics Series 150, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:150
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    File URL: http://www.ihs.ac.at/publications/eco/es-150.pdf
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    References listed on IDEAS

    as
    1. Hintermaier, Thomas, 2005. "A sunspot paradox," Economics Letters, Elsevier, vol. 87(2), pages 285-290, May.
    2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    3. Aadland, David & Huang, Kevin X. D., 2004. "Consistent high-frequency calibration," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2277-2295, October.
    4. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
    5. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
    6. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
    7. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    8. Stephanie Schmitt-Grohe, 2000. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 90(5), pages 1136-1159, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Hintermaier, Thomas, 2005. "A sunspot paradox," Economics Letters, Elsevier, vol. 87(2), pages 285-290, May.
    2. Reiner Franke & Stephen Sacht, 2014. "Some Observations On The High-Frequency Versions Of A Standard New-Keynesian Model," Bulletin of Economic Research, Wiley Blackwell, vol. 66(1), pages 72-94, January.
    3. Flaschel Peter & Franke Reiner & Proaño Christian R., 2008. "On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-12, December.
    4. Luis A. Puch & Omar Licandro, 2006. "Is Discrete Time a Good Representation of Continuous Time?," Working Papers 2006-20, FEDEA.
    5. Sacht, Stephen, 2014. "Analysis of Various Shocks within the High-Frequency Versions of the Baseline New-Keynesian Model," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100372, Verein für Socialpolitik / German Economic Association.
    6. Oberfield, Ezra & Trachter, Nicholas, 2012. "Commodity money with frequent search," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2332-2356.
    7. Chryssi Giannitsarou & Alexia Anagnostopoulos, 2005. "Modeling Time and Macroeconomic Dynamics," Money Macro and Finance (MMF) Research Group Conference 2005 60, Money Macro and Finance Research Group.
    8. Olaf Posch, 2018. "Resurrecting the New-Keynesian Model: (Un)conventional Policy and the Taylor Rule," CESifo Working Paper Series 6925, CESifo Group Munich.
    9. Ben Aissa, Mohamed Safouane & Musy, Olivier & Pereau, Jean-Christophe, 2007. "Modelling inflation persistence with periodicity changes in fixed and predetermined prices models," Economic Modelling, Elsevier, vol. 24(5), pages 823-838, September.

    More about this item

    Keywords

    Sunspots; Indeterminacy; High frequency; Temporal aggregation;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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