Endogenous business cycles and stabilization policies

Marta Aloi, Hans Jorgen Jacobsen and Teresa Lloyd-Braga

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: The paper reports results on the effects of stylized stabilization policies on endogenously created fluctuations. A simple monetary model with intertemporally optimizing agents is considered. Fluctuations in output may occur due to fluctuations in labor supply which are again caused by volatile expectations which are ``self fulfilling'', i.e. correct given the model. It turns out that stabilization policies that are sufficiently countercyclical in the sense that government spending (on transfers or demand) depends sufficiently strongly negatively on GNP-increases can stabilize the economy at a monetary steady state for an arbitrarily low degree of distortion of that steady state. Such stabilization has unambiguously good welfare effects and can be achieved without features such as positive lump sum taxation or negative income taxation as part of the stabilization policy.

Keywords: Endogenous business cycles; stabilization policy (search for similar items in EconPapers)
JEL-codes: E32 E63 (search for similar items in EconPapers)
Date: 1998-09, Revised 2000-06
New Economics Papers: this item is included in nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Endogenous Business Cycles and Stabilization Policies (2000)
Working Paper: Endogenous Business Cycles and Stabilization Policies (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:476

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