IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Learning, Capital-Embodied Technology and Aggregate Fluctuations

  • Christoph Görtz
  • John Tsoukalas

Recent evidence suggests that agents’ expectations may have played a role in several cycli¬cal episodes such as the U.S. "new economy" boom in the late 1990s, the real estate boom in Japan in the 1980s and the real estate boom in the U.S. which ended in 2008. One chal¬lenge in the expectations driven view of fluctuations has been to develop simple one sector models that can give rise to such fluctuations without a compromise on other dimensions. In this paper we propose a simple generalization of the Greenwood et al. (1988) one sec¬tor model and show it can generate fluctuations that arise as a result of agents difficulty to forecast productivity embodied in new capital. The two key assumptions in the model are: (1) the vintage view of capital productivity, whereby each successive vintage has (po¬tentially) different productivity and (2) agents’ imperfect information and learning about this productivity. The model is consistent with second and third moments from U.S. data. Simulations of the model suggest that, (a) noise amplifies fluctuations and (b) pure noise can trigger recessions that mimic in magnitude, duration and depth the typical post WW II U.S. recession.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/11-06.pdf
Download Restriction: no

Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 11/06.

as
in new window

Length:
Date of creation:
Date of revision:
Handle: RePEc:not:notcfc:11/06
Contact details of provider: Postal:
School of Economics University of Nottingham University Park Nottingham NG7 2RD

Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/cfcm/index.aspx

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
  2. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
  3. Plutarchos Sakellaris & Daniel J. Wilson, 2004. "Quantifying Embodied Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 1-26, January.
  4. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc.
  5. Helpman, Elhanan & Trajtenberg, Manuel, 1994. "A Time to Sow and a Time to Reap: Growth Based on General Purpose Technologies," CEPR Discussion Papers 1080, C.E.P.R. Discussion Papers.
  6. 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.
  7. Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers 0804E, University of Ottawa, Department of Economics.
  8. Beaudry, Paul & Portier, Franck, 2007. "When can changes in expectations cause business cycle fluctuations in neo-classical settings?," Journal of Economic Theory, Elsevier, vol. 135(1), pages 458-477, July.
  9. Den Haan, Wouter & Kaltenbrunner, Georg, 2007. "Anticipated Growth and Business Cycles in Matching Models," CEPR Discussion Papers 6063, C.E.P.R. Discussion Papers.
  10. Gary D. Hansen & Edward C. Prescott, 2005. "Capacity constraints, asymmetries, and the business cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 850-865, October.
  11. Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
  12. Kobayashi Keiichiro & Nutahara Kengo, 2010. "Nominal Rigidities, News-Driven Business Cycles, and Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-26, September.
  13. Comin, Diego & Gertler, Mark & Santacreu, Ana Maria, 2009. "Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations," Working Papers 2014-45, Federal Reserve Bank of St. Louis.
  14. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2010. "Investment shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 132-145, March.
  15. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
  16. Van Nieuwerburgh, Stijn & Veldkamp, Laura, 2006. "Learning asymmetries in real business cycles," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 753-772, May.
  17. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  18. Dean Croushore, 1993. "Introducing: the survey of professional forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-15.
  19. Christopher M. Gunn & Alok Johri, 2009. "News and knowledge capital," Department of Economics Working Papers 2009-02, McMaster University.
  20. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2009. "Investment shocks and the relative price of investment," Staff Reports 411, Federal Reserve Bank of New York.
  21. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
  22. Diego Comin & Sunil Mulani, 2005. "A Theory of Growth and Volatility at the Aggregate and Firm Level," NBER Working Papers 11503, National Bureau of Economic Research, Inc.
  23. Guido Lorenzoni, 2009. "A Theory of Demand Shocks," American Economic Review, American Economic Association, vol. 99(5), pages 2050-84, December.
  24. Jushan Bai & Serena Ng, 2001. "Tests for Skewness, Kurtosis, and Normality for Time Series Data," Boston College Working Papers in Economics 501, Boston College Department of Economics.
  25. Kenneth Kasa, 2000. "Forecasting the Forecasts of Others in the Frequency Domain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 726-756, October.
  26. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information technology explain why productivity accelerated in the United States but not the United Kingdom?," Harvard Institute of Economic Research Working Papers 2021, Harvard - Institute of Economic Research.
  27. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  28. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
  29. Alejandro Justiniano & Northwestern University, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," Computing in Economics and Finance 2006 219, Society for Computational Economics.
  30. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
  31. Sichel, D.E., 1988. "Business Cycle Asymmetry: A Deeper Look," Papers 85, Princeton, Department of Economics - Financial Research Center.
  32. Diego Comin, 2009. "On the integration of growth and business cycles," Empirica, Springer, vol. 36(2), pages 165-176, May.
  33. Stefano Eusepi & Bruce Preston, 2008. "Expectations, Learning and Business Cycle Fluctuations," NBER Working Papers 14181, National Bureau of Economic Research, Inc.
  34. Evans, Geroge W & Honkapohja, Seppo & Romer, Paul, 1998. "Growth Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 495-515, June.
  35. Marco Cagetti & Lars Peter Hansen & Thomas Sargent & Noah Williams, 2002. "Robustness and Pricing with Uncertain Growth," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 363-404, March.
  36. Jovanovic, Boyan & Lach, Saul, 1989. "Entry, Exit, and Diffusion with Learning by Doing," American Economic Review, American Economic Association, vol. 79(4), pages 690-99, September.
  37. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  38. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  39. James Morley & Jeremy Piger, 2012. "The Asymmetric Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 208-221, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:not:notcfc:11/06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hilary Hughes)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.