Abstract: This paper studies the business-cycle fluctuations predicted by a
two-sector endogenous-business-cycle model with sector-specific
external increasing returns to scale. It focuses on aspects of
actual fluctuations that have been identified both as defining features
of the business cycle and as ones that standard real-business-cycle models
cannot explain: the autocorrelation function of output growth, the
impulse response function of output to demand shocks, and the
forecastable movements of output, hours, and consumption. For
empirically realistic calibrations of the degree of sector-specific
external returns to scale, the results suggest that endogenous
fluctuations do not provide the dynamic element that is missing in
existing real-business-cycle models.
Keywords: Business cycles, expectations-driven fluctuations
Full paper (349 KB PDF)
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Last update: May 14, 1998
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