On business cycles and countercyclical policies
Marco Espinosa-Vega () and
Jang-Ting Guo
Economic Review, 2001, vol. 86, issue Q4, 11 pages
Abstract:
Since the third quarter of 2000, the U.S. economy began to experience a slowdown in its rate of growth. This slowdown serves as a reminder that the business cycle is still alive and raises the following questions: What do we know about the driving forces behind the business cycle? What should policymakers do in the face of economic fluctuations? ; The authors examine two explanations for business cycles that are well-known in academic circles: the animal spirits theory and the real business cycle theory. The former is closely connected with the Keynesian economic tradition and identifies market participants' mood swings as the key source of economic fluctuations. The second explanation is rooted in the classical economic tradition and views productivity shocks as the driving force behind economic fluctuations. The article then looks at what these theories suggest about countercyclical policies, which try to eliminate business cycle fluctuations or insulate market participants from their effects. The authors conclude that neither theory makes an unambiguous case supporting countercyclical policies. ; This conclusion may come as a surprise to government and business economists who have an ingrained belief in the benefits of such policies. It is important to remember, however, that attempts to understand business cycles and the effects and desirability of policies that may (or may not) moderate them are still at a very early stage.
Keywords: Business cycles; Monetary policy; Keynesian economics (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... no4_espinosa-guo.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedaer:y:2001:i:q4:p:1-11:n:v.86no.4
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Economic Review from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Meredith Rector ().