Animal Spirits as an Engine of Boom-Busts and Throttle of Productivity Growth

Christopher Gunn

No 13-04, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: The news-shock literature interprets empirical news-shock identifications as signals about future productivity. Under this view, changes in productivity cause changes in expectations. I investigate an alternative interpretation whereby changes in expectations cause changes in productivity. I present a model where firms adopt the technology of a deterministic frontier, and where self-fulfilling expectational-shocks unleash a frenzy of adoption through which firms increase productivity. Consistent with the news evidence,stock prices and aggregate activity boom, yet TFP increases with a lag. Simulations using i.i.d. expectational-shocks yield moments consistent with the data, and qualitatively capture both high-frequency boom-busts as well as lower-frequency fluctuations.

Keywords: expectations-driven business cycle; sunspot; multiple equilibria; indeterminacy; animal spirits; technology; news shock; intangible capital; embodied; productivity; technological adoption (search for similar items in EconPapers)
JEL-codes: C62 C68 E00 E2 E3 O3 O4 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-06, Revised 2015-04-10
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
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Citations: View citations in EconPapers (2)

Published: Animal Spirits as an Engine of Boom-Busts and Throttle of Productivity Growth,” Journal of Economic Dynamics and Control, Vol. 57 (August 2015), pp. 24–53.

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Journal Article: Animal spirits as an engine of boom-busts and throttle of productivity growth (2015)
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