Aggregate Comovements, Anticipation, and Business Cycles
David Love ()
No 704, Working Papers from Brock University, Department of Economics
This paper points out that negative comovements between macroeconomic aggregates are commonly observed in US data and that this is not explained by conventional business cycle models which emphasize positive comovements only. We discuss how these facts can be readily explained in simple Neoclassical models by the dynamic responses to signals (news) about future economic fundamentals unrelated to current fundamentals. These "anticipation effects" are contrasted with the effects of immediate shocks to current fundamentals which are the main source of fluctuations in standard RBC models. Simulation results illustrate that the enriche model dynamics under the anticipation assumption can replicate both the positive and negative comovements observed in the data and magnifies the effects of shocks, without negative implications for the model's predictions regarding other moments.
Keywords: Comovements; Anticipation; News; Real Business Cycles; Equilibrium Dynamics (search for similar items in EconPapers)
JEL-codes: E10 E30 E37 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-06, Revised 2007-06
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https://brocku.ca/repec/pdf/0704.pdf First version, June 2007 (application/pdf)
Working Paper: Aggregate Comovements, Anticipation, and Business Cycles (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0704
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