There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival...

We document the cyclical behavior of several measures of the relative price of investment goods for the U.S. economy over the last fifty years. Our main result is that there is no robust evidence that this relative price is countercyclical in the data. Furthermore, for the recent (post-Volcker)...

Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions mainly reflect periods of needed liquidation resulting from past over-investment....

It is often argued that changes in expectation are an important driving force of the business cycle. It is well known, however, that changes in expectations cannot generate positive co-movement between consumption, investment and employment in the most standard neo-classical business cycle...

This paper uses aggregate Japanese data and sectoral US data to explore the properties of the joint behaviour of stock prices and total factor productivity (TFP) with the aim of highlighting data patterns that are useful for evaluating business cycle theories. The approach used follows that...

A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks - which are shocks that have no short- or long-run effects on productivity - and fluctuations driven by unexpected changes in technology. In this Paper we propose a...

This Paper proposes a model of business cycles in which recessions and booms arise as the result of difficulties encountered by agents in properly forecasting the economy's future needs in terms of capital. The idea has a long history in the macroeconomic literature, as reflected by the work of...

Business cycles reflect changes over time in the amount of trade between individuals. In this paper we show that incorporating explicitly intra-temporal gains from trade between individuals into a macroeconomic model can provide new insight into the potential mechanisms driving economic...

We analyze optimal taxation in an economy with monopsonistic labour markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the...

We show the existence of a twin peaks relation between trust and the size of the welfare state that stems from two opposing forces. Uncivic people support large welfare states because they expect to benefit from them without bearing their costs. But civic individuals support generous benefits...