When can changes in expectations cause business cycle fluctuations in neo-classical settings?

When can changes in expectations cause business cycle fluctuations in neo-classical settings?

It is often argued that changes in expectation are an important driving force of the business cycle. However, it is well known that changes in expectations cannot generate positive co-movement between consumption, investment and employment in the most standard neo-classical business cycle models. This gives rise to the question of whether changes in expectation can cause business cycle fluctuat...

The Effect of Business Cycle Fluctuations on Import Protection in Selected Developing Countries

In recent decades, theorists proposed the role of domestic components such as interior active groups, policies and macroeconomic indicators on determination of protection policies. In the context of recent studies, this study has investigated the effect of business cycle fluctuations on import protection for selected developing countries in 1995-2011 by using dynamic panel data method. Furtherm...

Expectations Formation and Business Cycle Fluctuations: An Empirical Analysis of Actual and Expected Output in UK

Direct measures of expectations, derived from survey data, are used in a Vector Autoregressive model of actual and expected output in eight industries in the UK manufacturing sector. No evidence is found with which to reject rationality in the expectations series when measurement error is appropriately taken into account. The VAR analysis illustrates the importance of intersectoral interactions...

Business Cycle Features In The Iranian Economy

Business Cycle Amplification with Heterogeneous Expectations

This paper studies the implications for business cycle dynamics of heterogeneous expectations in a stochastic growth model. The assumption of homogeneous, rational expectations is replaced with a heterogeneous expectations model where a fraction of agents hold rational expectations and the remaining fraction adopt parsimonious forecasting models that are, in equilibrium, optimal within a restri...