Noisy Business Cycles
This paper investigates a real-business-cycle economy that features dispersed information about the underlying aggregate productivity shocks, taste shocks, and—potentially—shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Book chapter |
| Language: | en_US |
| Published: |
University of Chicago Press
2010
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| Online Access: | http://hdl.handle.net/1721.1/52398 https://orcid.org/0000-0002-9269-5094 |
| _version_ | 1826216726664052736 |
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| author | Angeletos, George-Marios La'O, Jennifer |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Angeletos, George-Marios La'O, Jennifer |
| author_sort | Angeletos, George-Marios |
| collection | MIT |
| description | This paper investigates a real-business-cycle economy that features dispersed information
about the underlying aggregate productivity shocks, taste shocks, and—potentially—shocks to
monopoly power. We show how the dispersion of information can (i) contribute to significant
inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative shortrun
response of employment to productivity shocks; (iii) imply that productivity shocks explain
only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the
business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and
(vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none
of these properties requires significant uncertainty about the underlying fundamentals: they
rest on the heterogeneity of information and the strength of trade linkages in the economy, not
the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart
from undoing monopoly distortions or providing the agents with more information, no policy
intervention can improve upon the equilibrium allocations. |
| first_indexed | 2024-09-23T16:52:27Z |
| format | Book chapter |
| id | mit-1721.1/52398 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T16:52:27Z |
| publishDate | 2010 |
| publisher | University of Chicago Press |
| record_format | dspace |
| spelling | mit-1721.1/523982022-10-03T08:50:21Z Noisy Business Cycles Angeletos, George-Marios La'O, Jennifer Massachusetts Institute of Technology. Department of Economics Angeletos, George-Marios La'O, Jennifer Angeletos, George-Marios This paper investigates a real-business-cycle economy that features dispersed information about the underlying aggregate productivity shocks, taste shocks, and—potentially—shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative shortrun response of employment to productivity shocks; (iii) imply that productivity shocks explain only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and (vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none of these properties requires significant uncertainty about the underlying fundamentals: they rest on the heterogeneity of information and the strength of trade linkages in the economy, not the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart from undoing monopoly distortions or providing the agents with more information, no policy intervention can improve upon the equilibrium allocations. 2010-03-08T21:04:43Z 2010-03-08T21:04:43Z 2010 2009-07 Book chapter http://purl.org/eprint/type/ConferencePaper 0889-3365 NBER working paper w14982 http://hdl.handle.net/1721.1/52398 Angeletos, George-Marios, and Jennifer La'O. “Noisy Business Cycles.” Chapter in NBER book NBER Macroeconomics Annual 2009, Volume 24 (2010), Daron Acemoglu, Kenneth Rogoff and Michael Woodford, editors (p. 319 - 378). https://orcid.org/0000-0002-9269-5094 en_US http://www.nber.org/chapters/c11802.pdf NBER Macroeconomics Annual 2009 Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf University of Chicago Press George-Marios Angeletos |
| spellingShingle | Angeletos, George-Marios La'O, Jennifer Noisy Business Cycles |
| title | Noisy Business Cycles |
| title_full | Noisy Business Cycles |
| title_fullStr | Noisy Business Cycles |
| title_full_unstemmed | Noisy Business Cycles |
| title_short | Noisy Business Cycles |
| title_sort | noisy business cycles |
| url | http://hdl.handle.net/1721.1/52398 https://orcid.org/0000-0002-9269-5094 |
| work_keys_str_mv | AT angeletosgeorgemarios noisybusinesscycles AT laojennifer noisybusinesscycles |