Anticipation and Real Business Cycles
David Love () and
Jean-Francois Lamarche ()
No 703, Working Papers from Brock University, Department of Economics
Standard real business cycle (RBC) theory assumes that changes in economic conditions are unanticipated. We argue that upcoming changes are often well anticipated. Employing the RBC methodology to evaluate models when changes in economic conditions are fully anticipated provides evidence on the relevance of this alternative. We find that anticipation effects i) reduce the exogenous volatility required for the models to explain output folatility, ii) improves or leaves unchanged, the model predictions for the data moments studied and, iii) can go some way to providing realistic internal propagation mechanisms within theoretical frameworks.
Keywords: Anticipation; Real Business Cycles; Impulse Responses (search for similar items in EconPapers)
JEL-codes: E10 E30 E37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-09, Revised 2007-09
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0703
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