On expectations‐driven business cycles in economies with production externalities

Stefano Eusepi

International Journal of Economic Theory, 2009, vol. 5, issue 1, 9-23

Abstract: Expectations‐driven business cycles are defined as positive co‐movement between consumption, investment and hours that result from a change in expectations, holding constant technology, preferences and government intervention. This note explores the possibility of expectations‐driven business cycles in business cycle models with external effects. It is found that in one‐sector models conditions for expectations‐driven business cycles and conditions for multiple equilibria are tightly connected. In two‐sector models those conditions appear to be mutually exclusive.

Date: 2009
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https://doi.org/10.1111/j.1742-7363.2008.00101.x

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