Real Business Cycles and the Animal Spirits Hypothesis in a Cash-in-Advance Economy

Jean-Paul Barinci () and Arnaud Cheron
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Jean-Paul Barinci: EPEE-Université d'Evry - Val d'Essonne and EUREQua - Université de Paris 1

No 01-13, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper examines the dynamical properties of a one-sector cash-in- advance constraint model with constant returns to scale. Its aim is to over- come some of the difficulties encountered by earlier models in establishing the empirical relevance of indeterminacy and sunspots as means to understand the business cycle. It is shown that, in opposition to available results, indeterminacy occurs for values of the intertemporal elasticity of substitution in consumption consistent with the bulk of empirical estimates. It is also shown that sunspot shocks do not necessarily generate countercyclical movements in consumption. In addition, considering simultaneously beliefs and technological disturbances, it turns out that the model performs as well as real sunspot models with increasing returns to scale in matching the business cycle.

Keywords: Money; Indeterminacy; Sunspots; Business Cycle (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2001
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Citations: View citations in EconPapers (1)

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