Pigouvian Cycles

Renato Faccini and Leonardo Melosi

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 2, 281-318

Abstract: Current and expected unemployment rates contain information that is highly useful to estimate the effect of news about TFP and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by noise about TFP. These results emerge because of the low-frequency negative relationship between unemployment and TFP growth. The model predicts that the start (end) of most US recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.

JEL-codes: E21 E22 E23 E24 E32 E43 E52 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Pigouvian Cycles (2019)
Working Paper: Pigouvian Cycles (2018)
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DOI: 10.1257/mac.20190467

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