A Theory of Demand Shocks
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demand.pdf
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330.87 KB
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Adobe PDF
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Author(s)
Lorenzoni, Guido
Date Issued
December 2009
Journal
American Economic Review
Publisher
American Economic Association
Citation
Lorenzoni, Guido 2009. "A Theory of Demand Shocks." American Economic Review, 99(5): 2050–84.
Version
Author's final manuscript
Abstract
This paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity. Agents are hit by heterogeneous productivity shocks, they observe their own productivity and a noisy public signal regarding aggregate productivity. The public signal gives rise to "noise shocks," which have the features of aggregate demand shocks: they increase output, employment, and inflation in the short run and have no effects in the long run. Numerical examples suggest that the model can generate sizable amounts of noise-driven volatility.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
http://dx.doi.org/10.1257/aer.99.5.2050
