1,522 research outputs found
Imperfect competition and indeterminacy of aggregate output
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 [3] and Gali [19], indeterminacy in our model is global; hence it is more robust to structural parameters. In addition, sunspots in our model can be autocorrelated. The paper provides a justification for exogenous variations in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature. Our model outperforms a standard RBC model driven by technology shocks in several dimensions, including the volatility of labor market and the hump-shaped output dynamics.Prices ; Business cycles
Imperfect competition and sunspots
This paper shows that imperfect competition can be a rich source of sunspots equilibria and coordination failures. This is demonstrated in a dynamic general equilibrium model that has no major distortions except imperfect competition. In the absence of fundamental shocks, the model has a unique certainty (fundamental) equilibrium. But there is also a continuum of stochastic (sunspots) equilibria that are not mere randomizations over fundamental equilibria. Markup is always counter-cyclical in sunspots equilibria, which is consistent with empirical evidence. The paper provides a justification for exogenous variations over time in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature. We show that fluctuations driven by self-fulfilling expectations (or sunspots) look very similar to fluctuations driven by technology shocks, and we prove that such fluctuations are welfare reducing.Equilibrium (Economics) ; Business cycles
Incomplete information and self-fulfilling prophecies
This paper shows that incomplete information can be a rich source of sunspots equilibria. This is demonstrated in a standard dynamic general equilibrium model of monopolistic competition … la Dixit-Stiglitz. In the absence of fundamental shocks, the model has a unique certainty (fundamental) equilibrium, but there are also multiple stochastic (sunspots) equilibria that are not mere randomizations over fundamental equilibria. In other words, sunspots can exist in infinite-horizon dynamic models with a unique saddle path steady state. In contrast to the recent sunspots literature (e.g., Benhabib and Farmer 1994), sunspots arising under incomplete information can be serially correlated and are robust to parameters associated with production technologies and preferences. Markup is always countercyclical in sunspots equilibria (which is consistent with empirical evidence) and fluctuations driven by sunspots look very similar to fluctuations driven by technology shocks.Business cycles ; Prices
On currency crises and contagion
This paper analyzes the role of contagion in the currency crises in emerging markets during the 1990s. It employs a non-linear Markov-switching model to conduct a systematic comparison and evaluation of three distinct causes of currency crises: contagion, weak economic fundamentals, and sunspots, i.e. unobservable shifts in agents' beliefs. Testing this model empirically through Markov-switching and panel data models reveals that contagion, i.e. a high degree of real integration and financial interdependence among countries, is a core explanation for recent emerging market crises. The model has a remarkably good predictive power for the 1997-98 Asian crisis. The findings suggest that in particular the degree of financial interdependence and also real integration among emerging markets are crucial not only in explaining past crises but also in predicting the transmission of future financial crises. JEL Classification: F30, E60, E65, E44
Endogenous volatility, endogenous growth, and large welfare gains from stabilization policies
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 fluctuations can generate permanently higher rates of growth. Self fulfilling expectations arise from incomplete information for price setting firms. ; Previously titled: Volatility, growth, and large welfare gains from stabilization policies
The dynamics of Wolf numbers based on nonlinear dynamo with magnetic helicity: comparisons with observations
We investigate the dynamics of solar activity using a nonlinear
one-dimensional dynamo model and a phenomenological equation for the evolution
of Wolf numbers. This system of equations is solved numerically. We take into
account the algebraic and dynamic nonlinearities of the alpha effect. The
dynamic nonlinearity is related to the evolution of a small-scale magnetic
helicity, and it leads to a complicated behavior of solar activity. The
evolution equation for the Wolf number is based on a mechanism of formation of
magnetic spots as a result of the negative effective magnetic pressure
instability (NEMPI). This phenomenon was predicted 25 years ago and has been
investigated intensively in recent years through direct numerical simulations
and mean-field simulations. The evolution equation for the Wolf number includes
the production and decay of sunspots. Comparison between the results of
numerical simulations and observational data of Wolf numbers shows a 70 %
correlation over all intervals of observation (about 270 years). We determine
the dependence of the maximum value of the Wolf number versus the period of the
cycle and the asymmetry of the solar cycles versus the amplitude of the cycle.
These dependencies are in good agreement with observations.Comment: 9 pages, 13 figures, final revised paper for MNRA
Economic fundamentals and bank runs
Financial crises ; Economic conditions ; Banks and banking
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