Creator: Benhabib, Jess, 1948- and Farmer, Roger E. A. Series: Lucas expectations anniversary conference Abstract:
We introduce, into a version of the Real Business Cycle model, mild increasing returns-to-scale. These increasing returns-to-scale occur as a consequence of sector specific externalities, that is externalities where the output of the consumption and investment sectors have external effects on the output of firms within their own sector. Keeping the production technologies for both sectors identical for expositional simplicity, we show that indeterminacy can easily occur for parameter values typically used in the real business cycle literature, and in contrast to some earlier literature on indeterminacies, for externalities mild enough so that labor demand curves are downward sloping.
Stichwort: Cycle, Real business cycle, Business fluctuations, Indeterminacy, Sunspots, and Business cycles Fach: E00 - Macroeconomics and monetary economics - General - General, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, and E40 - Money and interest rates - General
Creator: Edge, Rochelle Mary, 1971- and Rudd, Jeremy Bay, 1970- Series: Joint commitee on business and financial analysis Abstract:
We add a nominal tax system to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium. When depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium. These results have obvious implications for assessing the historical conduct of monetary policy.
Stichwort: Monetary policy, Business cycle, Cycle, Interest, Inflation, Policy, Prices, Monetary, Rational expectation, and Tax Fach: E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E12 - General aggregative models - Keynes ; Keynesian ; Post-Keynesian, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Stichwort: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Fach: O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles