Indeterminacy, aggregate demand, and the real business cycle

Jess Benhabib, Yi Wen

    Research output: Contribution to journalArticle

    Abstract

    We show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard RBC models predict fairly well, but also aspects of actual fluctuations that standard RBC models cannot explain, such as the hump-shaped, trend reverting impulse responses to transitory shocks found in US output (Cogley and Nason, Am. Econom. Rev. 85 (1995) 492); the large forecastable movements and comovements of output, consumption and hours (Rotemberg and Woodford, Am. Econom. Rev. 86 (1996) 71); and the fact that consumption appears to lead output and investment over the business cycle. Indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale.

    Original languageEnglish (US)
    Pages (from-to)503-530
    Number of pages28
    JournalJournal of Monetary Economics
    Volume51
    Issue number3
    DOIs
    StatePublished - Apr 2004

    Fingerprint

    Indeterminacy
    Aggregate demand
    Real business cycles
    Fluctuations
    RBC models
    Demand shocks
    Comovement
    Business cycles
    Transitory shocks
    Impulse response
    Capacity utilization
    Increasing returns to scale

    Keywords

    • Capacity utilization
    • Demand shocks
    • Increasing-returns-to-scale
    • Indeterminacy
    • Real business cycles

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Indeterminacy, aggregate demand, and the real business cycle. / Benhabib, Jess; Wen, Yi.

    In: Journal of Monetary Economics, Vol. 51, No. 3, 04.2004, p. 503-530.

    Research output: Contribution to journalArticle

    Benhabib, Jess ; Wen, Yi. / Indeterminacy, aggregate demand, and the real business cycle. In: Journal of Monetary Economics. 2004 ; Vol. 51, No. 3. pp. 503-530.
    @article{ab69408ff7104c70bfeae40ae430caf2,
    title = "Indeterminacy, aggregate demand, and the real business cycle",
    abstract = "We show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard RBC models predict fairly well, but also aspects of actual fluctuations that standard RBC models cannot explain, such as the hump-shaped, trend reverting impulse responses to transitory shocks found in US output (Cogley and Nason, Am. Econom. Rev. 85 (1995) 492); the large forecastable movements and comovements of output, consumption and hours (Rotemberg and Woodford, Am. Econom. Rev. 86 (1996) 71); and the fact that consumption appears to lead output and investment over the business cycle. Indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale.",
    keywords = "Capacity utilization, Demand shocks, Increasing-returns-to-scale, Indeterminacy, Real business cycles",
    author = "Jess Benhabib and Yi Wen",
    year = "2004",
    month = "4",
    doi = "10.1016/j.jmoneco.2003.08.011",
    language = "English (US)",
    volume = "51",
    pages = "503--530",
    journal = "Journal of Monetary Economics",
    issn = "0304-3932",
    publisher = "Elsevier",
    number = "3",

    }

    TY - JOUR

    T1 - Indeterminacy, aggregate demand, and the real business cycle

    AU - Benhabib, Jess

    AU - Wen, Yi

    PY - 2004/4

    Y1 - 2004/4

    N2 - We show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard RBC models predict fairly well, but also aspects of actual fluctuations that standard RBC models cannot explain, such as the hump-shaped, trend reverting impulse responses to transitory shocks found in US output (Cogley and Nason, Am. Econom. Rev. 85 (1995) 492); the large forecastable movements and comovements of output, consumption and hours (Rotemberg and Woodford, Am. Econom. Rev. 86 (1996) 71); and the fact that consumption appears to lead output and investment over the business cycle. Indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale.

    AB - We show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard RBC models predict fairly well, but also aspects of actual fluctuations that standard RBC models cannot explain, such as the hump-shaped, trend reverting impulse responses to transitory shocks found in US output (Cogley and Nason, Am. Econom. Rev. 85 (1995) 492); the large forecastable movements and comovements of output, consumption and hours (Rotemberg and Woodford, Am. Econom. Rev. 86 (1996) 71); and the fact that consumption appears to lead output and investment over the business cycle. Indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale.

    KW - Capacity utilization

    KW - Demand shocks

    KW - Increasing-returns-to-scale

    KW - Indeterminacy

    KW - Real business cycles

    UR - http://www.scopus.com/inward/record.url?scp=1642460197&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=1642460197&partnerID=8YFLogxK

    U2 - 10.1016/j.jmoneco.2003.08.011

    DO - 10.1016/j.jmoneco.2003.08.011

    M3 - Article

    VL - 51

    SP - 503

    EP - 530

    JO - Journal of Monetary Economics

    JF - Journal of Monetary Economics

    SN - 0304-3932

    IS - 3

    ER -