Demand Induced Fluctuations

Zhen Huo and José-Víctor Ríos-Rull

Review of Economic Dynamics, 2020, vol. 37 Supplement 1, S99-S117

Abstract: We build a variation of the neoclassical growth model in which households increased desire to save generate recessions. Our economy features three departures from the standard model: (1) goods markets (for nontradables) require active search from households wherein increases in consumption expenditures increase measured productivity; (2) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (3) labor markets have Nash bargaining wage setting and Mortensen-Pissarides search and matching frictions labor markets. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks. (Copyright: Elsevier)

Keywords: Great Recession: Paradox of thrift; Endogenous productivity (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1016/j.red.2020.06.011

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