On Expectations-Driven Business Cycles in Economies with Production Externalities: A Comment

Jang-Ting Guo, Anca-Ioana Sirbu and Richard M. H. Suen

MPRA Paper from University Library of Munich, Germany

Abstract: Eusepi (2009, International Journal of Economic Theory 5, pp. 9-23) analytically finds that a one-sector real business cycle model may exhibit positive co-movement between consumption and investment when the equilibrium wage-hours locus is positively-sloped and steeper than the household's labor supply curve. However, we show that this condition does not imply expectations-driven business cycles will emerge in Eusepi's model. Specifically, a positive news shock about future productivity improvement leads to an aggregate recession whereby output, employment, consumption and investment all fall in the announcement period.

Keywords: Expectations-Driven Business Cycles; Production Externalities. (search for similar items in EconPapers)
JEL-codes: C62 E32 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Related works:
Journal Article: On expectations-driven business cycles in economies with production externalities: A comment (2012)
Working Paper: On Expectations-Driven Business Cycles in Economies with Production Externalities: A Comment (2010)
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