scholarly journals SELF-FULFILLING PROPHECIES AND THE BUSINESS CYCLE

1997 ◽  
Vol 1 (4) ◽  
pp. 740-769 ◽  
Author(s):  
ROGER E.A. FARMER ◽  
MICHAEL WOODFORD
Keyword(s):  
Business Cycle ◽  
Wide Class ◽  
Rational Expectations ◽  
Overlapping Generations ◽  
Phillips Curve ◽  
Signal Extraction ◽  
Overlapping Generations Model ◽  
Sunspot Equilibria ◽  
The Business Cycle ◽  
States Of Nature

We demonstrate that multiple stationary rational-expectations equilibria exist in a version of Lucas's island economy. The existence of these equilibria follows from the fact that there is an indeterminate set of monetary equilibria in the two-period overlapping-generations model. We show how to construct stationary rational-expectations equilibria by randomizing over the set of nonstationary monetary equilibria. In some of our equilibria, a positively sloped Phillips curve exists even though our economy contains no signal-extraction problem as in the original Lucas paper. Our equilibria are indexed by beliefs and are examples of the existence of sunspot equilibria in which allocations may differ across states of nature for which preferences, technology, and endowments are identical. Our technique for constructing stationary sunspot equilibria should prove useful in a wide class of models in which an indeterminate stationary equilibrium exists.

scholarly journals Business Cycles in a Two-Sided Altruism Model

Mathematics ◽  
2021 ◽  
Vol 9 (17) ◽  
pp. 2054
Author(s):  
Hiroshi Fujiu
Keyword(s):  
Dynamical System ◽  
Business Cycles ◽  
Business Cycle ◽  
Overlapping Generations ◽  
Overlapping Generations Model ◽  
Periodic Fluctuations

This study demonstrates that business cycles with complex periodic fluctuations may arise in an overlapping generations model with two-sided altruism. The structure of an equilibrium dynamical system strongly depends on the degree of altruism in the model. If either altruism of a generation to the parent or the child disappears, the study also demonstrates that complex periodic fluctuations never occur. In this sense, two-sided altruism is essential for a complex business cycle.

The Effects of Monetary Policy Announcements

2019 ◽  
Author(s):  
Chao Gu ◽  
Han Han ◽  
Randall Wright
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Overlapping Generations ◽  
Unique Equilibrium ◽  
Policy Changes ◽  
Overlapping Generations Model ◽  
Payment Methods ◽  
Transition Paths ◽  
Sunspot Equilibria ◽  
Monetarist Model

The effects of news (i.e., information innovations) are studied in dynamic general equilibrium models where liquidity matters. As a leading example, news can be announcements about monetary policy directions. In three standard theoretical environments—an overlapping generations model of fiat currency, a new monetarist model accommodating multiple payment methods, and a model of unsecured credit—transition paths are constructed between an announcement and the date at which events are realized. Although the economics is different, in each case, news about monetary policy can induce volatility in financial and other markets, with transitions displaying booms, crashes, and cycles in prices, quantities, and welfare. This is not the same as volatility based on self-fulfilling prophecies (e.g., cyclic or sunspot equilibria) studied elsewhere. Instead, the focus is on the unique equilibrium that is stationary when parameters are constant but still delivers complicated dynamics in simple environments due to information and liquidity effects. This is true even for classically-neutral policy changes. The induced volatility can be bad or good for welfare, but using policy to exploit this in practice seems difficult because outcomes are very sensitive to timing and parameters. The approach can be extended to include news of real factors, as seen in examples.

scholarly journals THE BURDEN OF UNANTICIPATED INFLATION: ANALYSIS OF AN OVERLAPPING-GENERATIONS MODEL WITH PROGRESSIVE INCOME TAXATION AND STAGGERED PRICES

2011 ◽  
Vol 16 (2) ◽  
pp. 278-308 ◽  
Author(s):  
Burkhard Heer ◽  
Alfred Maußner
Keyword(s):  
Overlapping Generations ◽  
Price Model ◽  
Overlapping Generations Model ◽  
Lump Sum ◽  
Short Run ◽  
The Business Cycle ◽  
Redistributive Effects ◽  
Progressive Income Taxation ◽  
Unanticipated Inflation

Inflation is often associated with a loss for the poor in the medium and long term. We study the short-run redistributive effects of unanticipated inflation in a dynamic optimizing sticky price model of the business cycle. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels of the effect of inflation on income distribution: (1) factor prices, (2) “bracket creep,” and (3) sticky pensions. Unanticipated inflation that is caused by monetary expansion is found to reduce income inequality. In particular, an increase of the money growth rate by one standard deviation results in a 1% drop of the Gini coefficient of disposable income if extra tax revenues are transferred lump-sum to the households.

scholarly journals Complementarity of Labor Market Institutions, Equilibrium Unemployment and the Propagation of Business Cycles

2002 ◽  
Vol 3 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Michael C. Burda ◽  
Mark Weder
Keyword(s):  
Labor Market ◽  
Business Cycles ◽  
Business Cycle ◽  
Rational Expectations ◽  
Labor Market Institutions ◽  
Stochastic Dynamic ◽  
Market Institutions ◽  
Dynamic General Equilibrium Model ◽  
The Business Cycle ◽  
Differential Support

Abstract This paper evaluates complementarities of labor market institutions and the business cycle in the context of a stochastic dynamic general equilibrium model economy. Matching between workers and vacancies with endogenous time spent in search, Nash-bargained wages, payroll taxation, and differential support for unemployed labor in search and leisure are central aspects of the model. For plausible regions of the policy and institutional parameter space, the model exhibits more persistence than standard real business cycle models and can exhibit indeterminacy of rational expectations paths without increasing returns in production. Furthermore, labor market institutions act in a complementary fashion in generating these effects.

scholarly journals Inventories, rational expectations, and the business cycle

1981 ◽  
Vol 8 (3) ◽  
pp. 277-304 ◽  
Author(s):  
Alan S. Blinder ◽  
Stanley Fischer
Keyword(s):  
Business Cycle ◽  
Rational Expectations ◽  
The Business Cycle
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