We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration...

Aguiar-Conraria and Wen (2008) argued that dependence on foreign oil raises the likelihood of equilibrium indeterminacy (economic instability) for oil importing countries. We argue that this relation is more subtle. The endogenous choices of prices and quantities by a cartel of oil exporters,...

Post-war US data show that consumption growth "Granger causes" output and investment growth. This is puzzling if technology is the driving force of the business cycle. I ask whether general equilibrium models with information frictions and non-technology shocks can rationalize the observed...

This paper shows that (i) fluctuations driven by self-fulfilling expectations can negatively affect long-run growth and (ii) the welfare gain from further stabilizing the U.S. economy can be several orders larger than that calculated by Lucas (1987) because policies designed to reduce...

This paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard DSGE model with imperfect competition. Indeterminacy arises in the model from the composition of aggregate output. In sharp contrast to the indeterminacy literature pioneered by Benhabib and Farmer...

This paper resuscitates the credit-cycle theory of Kiyotaki and Moore (1997) in a two-agent RBC model with conventional preferences and standard neoclassical technologies. It is shown that small transitory shocks to credit demand (or supply) can generate large, highly persistent, dampened cycles...

This paper explores the possibility that economic fluctuations may be largely demand-driven. It is shown that the stylized open-economy business cycle regularities documented by Feldstein and Horioka (1980) and Backus, Kehoe and Kydland (1992) can be explained by demand shocks alone even in a...

This paper provides a simple dynamic optimization model of durable goods inventories. Closed-form solutions are derived in a general equilibrium environment with imperfect information and serially correlated shocks. The model is then applied to scrutinize some popular conjectures regarding the...

This paper offers a plausible explanation for the close link between oil prices and aggregate macroeconomic performance in the 1970s. Although this link has been well documented in the empirical literature, standard economic models are not able to replicate this link when actual oil prices are...

This paper studies conditions under which demand-side shocks can generate realistic business cycles in RBC models. Although highly persistent demand shocks are necessary for generating procyclical investment, variable capacity utilization and habit formation can reduce the required degree of...