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http://hdl.handle.net/2451/27316
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| Title: | Learning Asymmetries in Real Business Cycles |
| Authors: | Nieuwerburgh, Stijn Van
Veldkamp, Laura |
| Issue Date: | 3-Jul-2003 |
| Series/Report no.: | S-MF-03-08 |
| Abstract: | When an economic boom ends, the downturn is generally sharp and short.
When growth resumes, the boom is more gradual. Our explanation for this
pattern rests on learning about productivity. When agents believe
productivity is high, they work, invest, and produce more. More
production generates higher precision information. When the economy
passes the peak of a productivity boom, precise estimates of the
slowdown prompt quick, decisive reactions: Investment and labor fall
sharply. At the end of a slump, low production yields noisy estimates of
the recovery. The noise impedes learning, slows the recovery, and makes
booms more gradual than crashes. A calibrated model generates asymmetry
in growth rates similar to macroeconomic aggregates. Fluctuations in
agents’ forecast precision match observed countercyclical
dispersion in analysts’ macroeconomic forecasts. “There is,
however, another characteristic of what we call the trade cycle that our
explanation must cover; namely, the phenomenon of the crisis - the fact
that the substitution of a downward for an upward tendency often takes
place suddenly and violently, whereas there is, as a rule, no such sharp
turning point when an upward is substituted for a downward
tendency.” J.M. Keynes (1936) |
| URI: | http://hdl.handle.net/2451/27316 |
| Appears in Collections: | Macro Finance
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