Real business cycles and the animal spirits hypothesis in a CIA economy

Jean-Paul Barinci and Arnaud Cheron ()

CEPREMAP Working Papers (Couverture Orange) from CEPREMAP

Abstract: This paper examines the dynamical properties of a one-sector cash-indvance constraint model with constant returns to scale. Its aim is to overcome some of the difficulties encountered by earlier models in establishing the empirical relevance of indeterminacy and sunspots. It is first established that, in opposition to available results, indeterminacy occurs for values of the intertemporal elasticity of substitution in consumption consistent with the bulk of empirical estimates. It is then shown that sunspot shocks generate procyclical movements in consumption. Lastly, allowing both beliefs and technological disturbances, the model is found to perform as well as real sunspot models with increasing returns to scale in matching the business cycle.

JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2001
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Persistent link: http://EconPapers.repec.org/RePEc:cpm:cepmap:0110

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