scholarly journals Disaster Risk and Business Cycles

2012 ◽  
Vol 102 (6) ◽  
pp. 2734-2766 ◽  
Author(s):  
François Gourio
Keyword(s):  
Business Cycles ◽  
Interest Rates ◽  
Stock Prices ◽  
Disaster Risk ◽  
Expected Return ◽  
Risky Assets ◽  
The Great Depression ◽  
Business Cycle Model ◽  
Well Data ◽  
Real Business Cycle Model

Motivated by the evidence that risk premia are large and countercyclical, this paper studies a tractable real business cycle model with a small risk of economic disaster, such as the Great Depression. An increase in disaster risk leads to a decline of employment, output, investment, stock prices, and interest rates, and an increase in the expected return on risky assets. The model matches well data on quantities, asset prices, and particularly the relations between quantities and prices, suggesting that variation in aggregate risk plays a significant role in some business cycles. (JEL E13, E32, E44, G32)

scholarly journals Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions

2015 ◽  
Vol 7 (3) ◽  
pp. 153-188 ◽  
Author(s):  
Andrés Fernández ◽  
Adam Gulan
Keyword(s):  
Business Cycles ◽  
Interest Rates ◽  
Open Economy ◽  
Emerging Economies ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Financial Data ◽  
Cycle Model ◽  
Business Cycle Model

Countercyclical country interest rates have been shown to be an important characteristic of business cycles in emerging markets. In this paper we provide a microfounded rationale for this pattern by linking interest rate spreads to the dynamics of corporate leverage. For this purpose we embed a financial accelerator into a business cycle model of a small open economy and estimate it on a novel panel dataset for emerging economies that merges macroeconomic and financial data. The model accounts well for the empirically observed countercyclicality of interest rates and leverage, as well as for other stylized facts. (JEL E13, E32, E43, E44, F41, O11)

scholarly journals Plant-Level Irreversible Investment and Equilibrium Business Cycles

2002 ◽  
Vol 92 (1) ◽  
pp. 181-197 ◽  
Author(s):  
Marcelo L Veracierto
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Real Business Cycle ◽  
Aggregate Fluctuations ◽  
Cycle Model ◽  
Irreversible Investment ◽  
Business Cycle Model ◽  
Plant Level ◽  
Aggregate Dynamics ◽  
Real Business Cycle Model

This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real-business-cycle (RBC) model characterized by investment irreversibilities at the establishment level. The main finding is that investment irreversibilities do not play a significant role in an otherwise standard real-business-cycle model: Even though investment irreversibilities are crucial for establishment-level dynamics, aggregate fluctuations are basically the same under fully flexible or completely irreversible investment.

scholarly journals Theory and History Behind Business Cycles: Are the 1990s the Onset of a Golden Age?

1999 ◽  
Vol 13 (2) ◽  
pp. 69-90 ◽  
Author(s):  
Victor Zarnowitz
Keyword(s):  
Risk Perception ◽  
Business Cycles ◽  
Interest Rates ◽  
Stock Prices ◽  
Golden Age ◽  
Policy Effects ◽  
Exogenous Shocks ◽  
Endogenous Variables

The theory presented in this paper ties together profits, investment, credit, stock prices, inflation, and interest rates. The author discusses new estimates of profit and investment functions with important roles for growth and demand and productivity, price and cost levels, risk perception, credit volume, and credit difficulties. The relationships among these endogenous variables are viewed as constituting an enduring core of business cycles, the exogenous shocks and policy effects as more transitory and peripheral.

scholarly journals Common Trade Exposure and Business Cycle Comovement

2020 ◽  
Vol 2020 (1306) ◽  
pp. 1-32
Author(s):  
Oscar Avila-Montealegre ◽  
◽  
Carter Mix ◽  
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Bilateral Trade ◽  
Empirical Literature ◽  
Shock Transmission ◽  
Productivity Shock ◽  
Business Cycle Model ◽  
Common Trade ◽  
The Relationship ◽  
Real Business Cycle Model

A large empirical literature has shown that countries that trade more with each other have more correlated business cycles. We show that previous estimates of this relationship are biased upward because they ignore common trade exposure to other countries. When we account for common trade exposure to foreign business cycles, we find that (1) the effect of bilateral trade on business cycle comovement falls by roughly 25 percent and (2) common exposure is a significant driver of business cycle comovement. A standard international real business cycle model is qualitatively consistent with these facts but fails to reproduce their magnitudes. Past studies have used models that allow for productivity shock transmission through trade to strengthen the relationship between trade and comovement. We find that productivity shock transmission increases business cycle comovement largely because of a country-pair's common trade exposure to other countries rather than because of bilateral trade. When we allow for stronger transmission between small open economies than other country-pairs, comovement increases both from bilateral trade and common exposure, similar to the data.

NEWS ABOUT TAXES AND EXPECTATIONS-DRIVEN BUSINESS CYCLES

2017 ◽  
Vol 23 (4) ◽  
pp. 1340-1370
Author(s):  
Anca-Ioana Sirbu
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Income Tax ◽  
Good News ◽  
Real Business Cycle ◽  
Tax Rates ◽  
Capital Income ◽  
Cycle Model ◽  
Business Cycle Model ◽  
Real Business Cycle Model

This paper analyzes the possibility of expectations-driven business cycles to emerge in a one-sector real business cycle model if the unique driving force is news about future income tax rates. We find that good news about labor income tax rates cannot generate expectations-driven business cycles, whereas good news about capital income tax rates can. We show that a one-sector real business cycle model enriched with (i) variable capital utilization and (ii) investment adjustment costs and driven solely by news shocks about capital income tax rates is able to generate qualitatively and quantitatively realistic business cycle fluctuations. In contrast to numerous studies in the news-driven business cycle literature, our model maintains separable preferences.

scholarly journals Common Trade Exposure and Business Cycle Comovement

2020 ◽  
Author(s):  
Oscar Avila-Montealegre ◽  
Carter Mix
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Bilateral Trade ◽  
Empirical Literature ◽  
Shock Transmission ◽  
Productivity Shock ◽  
Business Cycle Model ◽  
Common Trade ◽  
The Relationship ◽  
Real Business Cycle Model

A large empirical literature has shown that countries that trade more with each other have more correlated business cycles. We show that previous estimates of this relationship are biased upward because they ignore common trade exposure to other countries. When we account for common trade exposure to foreign business cycles, we find that (1) the effect of bilateral trade on business cycle comovement falls by roughly 25 percent and (2) common exposure is a significant driver of business cycle comovement. A standard international real business cycle model is qualitatively consistent with these facts but fails to reproduce their magnitudes. Past studies have used models that allow for productivity shock transmission through trade to strengthen the relationship between trade and comovement. We find that productivity shock transmission increases business cycle comovement largely because of a country-pair's common trade exposure to other countries rather than because of bilateral trade. When we allow for stronger transmission between small open economies than other country-pairs, comovement increases both from bilateral trade and common exposure, similar to the data.

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