Business Cycles... Without Productivity Shocks

25 Pages Posted: 1 May 2003

See all articles by Francesco Busato

Francesco Busato

Aarhus University - School of Business and Social Sciences

Date Written: March, 31, 2003

Abstract

In contrast with well known theoretical and empirical results, this model shows that no externalities, no (even mild) increasing returns, no variable capacity utilization, no variable effort, no consumption habit formation are needed for demand shocks to explain the main aspects of actual fluctuations. In particular, it is showed that demand shocks are able to explain fairly well the main aspects of actual fluctuations for the US economy into a two-sector general equilibrium model aggregate. This model, moreover, is not subject to crowding out effect, which is a problem peculiar of a one-sector general equilibrium model with where fluctuations are demand driven. This analysis, thus, brings together real business cycle theory into closer conformity not only with the prediction of Keynesian theory, but also with actual data.

Keywords: Demand-Driven Business Cycles, Demand Uncertainty, External and Internal Finance, Keynesian Model

JEL Classification: E32, E12, E13, D80, G32

Suggested Citation

Busato, Francesco, Business Cycles... Without Productivity Shocks (March, 31, 2003). Available at SSRN: https://ssrn.com/abstract=391880 or http://dx.doi.org/10.2139/ssrn.391880

Francesco Busato (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

HOME PAGE: http://www.econ.au.dk/afn

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
105
Abstract Views
920
rank
317,929
PlumX Metrics