Aggregate Comovements, Anticipation, and Business Cycles

David Love

No 908, Working Papers from Brock University, Department of Economics

Abstract: This paper shows that negative comovements between major macroeconomic variables at business-cycle frequencies are commonly observed, but that standard Real Business Cycle (RBC) theory fails to predict this feature of the data. We show that allowing for ``anticipation effects'' in response to ``news shocks'' enables standard RBC models to predict both the observed patterns of negative comovement and overall positive correlations. Anticipation also improves magnification of shocks in the model without harming predictions for the other second moments central to RBC studies. Anticipation effects improve on standard RBC frameworks by offering an empirically plausible explanation for the nontrivial fraction of time that aggregate variables are observed to comove negatively.

Keywords: Comovements; Anticipation; News; Real Business Cycles; Equilibrium Dynamics (search for similar items in EconPapers)
JEL-codes: E10 E30 E37 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009-11
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
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Downloads: (external link)
https://brocku.ca/repec/pdf/0908.pdf First version, June 2007 (application/pdf)

Related works:
Journal Article: Aggregate Comovements, Anticipation, and Business Cycles (2011)
Working Paper: Aggregate Comovements, Anticipation, and Business Cycles (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0908

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