A defining characteristic of business cycle is comovements of economic variables across sectors. But it is not easy to replicate these comovements in standard real business cycle models. Traditionally, however, not only the productivity shocks emphasized in real business cycle models but also...

Abstract: The paper analyzes cyclical comovements in the Mercosur area differentiating idiosyncratic from common shocks. In the Mercosur (or any region for that matter) shocks can be country-specific, affecting only one country or a specific set of countries (for example, a weather-related...

When firms use bank oans and trade credit,bankruptcy rules can magnify aggregate fluctuations.A priori,a rule where banks are senior is not appropriate to dampen fluctuations.It might force trade creditors into bankruptcy by triggering a ‘domino e ffect ’-when firms go bust because...

This paper uses the neoclassical growth model to identify the effects of technological change on the US business cycle. In the model there are two sources of technological change: neutral, which affects the production of all goods homogeneously, and investment-specific. Investment-specific...

There is considerable disagreement in the empirical macro literature as to the degree of returns to scale in U.S. production. While many studies find evidence of a small degree of increasing returns, standard errors are typically large. This issue is of importance for assessing the possibility...

This paper looks at the linkages between growth and business cycles by bringing together two strands of literature. We incorporate a quality ladders engine of growth into an otherwise standard real business cycle model. Our fundamental question is, can Schumpeter’s creative destruction...

One way to interpret the current policies of many central banks is that they seek to stabilize economic activity. One possible justification for such a policy is that there is volatility in macro variables that individual agents cannot insure against. We study the simplest possible extension of...

This paper examines the relationship of business cycles, the terms of trade and Tobin's q using a three-sector dynamic stochastic general equilibrium model for a small open economy. Results show that terms of trade shocks account for half of actual volatility of GDP and stock market indices for...

This paper aims at identifying the main shocks, which cause movements in real GNP. It does so by searching for two shocks in the context of a VAR model, which explain the majority of the k-step ahead prediction error variances in real GNP for horizons between 0 and 5 years. We find that two...

In this paper we consider a model where some consumers act in a boundedly rational way by treating money as non-fungible (Kahneman and Tversky (1979) and (1984), Thaler (1987) and (1990). The budget is broken up into different expenditure groups (cookie-jars). Given the amount of resources...