Sectoral shocks and aggregate fluctuations

When an economic boom ends, the downturn is generally sharp and short. When growth resumes, the boom is more gradual. Our explanation for this pattern rests on learning about productivity. When agents believe productivity is high, they work, invest, and produce more. More production generates higher precision information. When the economy passes the peak of a productivity boom, precise estimates of the slowdown prompt quick, decisive reactions: Investment and labor fall sharply. At the end of a slump, low production yields noisy estimates of the recovery. The noise impedes learning, slows the recovery, and makes booms more gradual than crashes. A calibrated model generates asymmetry in growth rates similar to macroeconomic aggregates. Fluctuations in agentsâ¬" forecast precision match observed countercyclical dispersion in analystsâ¬" macroeconomic forecasts.â¬SThere is, however, another characteristic of what we call the trade cycle that our explanation must cover; namely, the phenomenon of the crisis - the fact that the substitution of a downward for an upward tendency often takes place suddenly and violently, whereas there is, as a rule, no such sharp turning point when an upward is substituted for a downward tendency.â¬? J.M. Keynes (1936)

Learning Asymmetries in Real Business Cycles

http://people.stern.nyu.edu/lveldkam/pdfs/rbcasymJME.pdf

https://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1016&context=econ_facpub

How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks

How and for whose benefit the European Central Bank (ECB) will work is the most important issue facing Europe, and has been the subject of vast media and academic interest which has already spawned a vast literature of discussion papers in the academic literature, and 'Euro Watch' features. Much of this discussion has been of an increasingly hysterical and political nature and has served to blur rather than inform. This book, written by a team at the ECB, including Otmar Issing the ECB's Chief Economist, provides the first comprehensive, inside, non-technical analysis of the monetary policy strategy, institutional features and operational procedures of the Eurosystem. The goals and the transmission mechanism of monetary policy are explored, as are the theoretical and empirical results underpinning the 'stability-oriented monetary policy strategy' adopted by the ECB. The characteristics of this strategy are also discussed in comparison with suggested alternatives.

/pdf/monetary-policy-in-the-euro-area-strategy-and-decision-26miuut35q.pdf

Nigel W. Duck

Papers

Yrjo Jahnsson Lectures: Models of Business Cycles.

A Proposal for the Control of the UK Money Supply

A Reply to `A Proposal for the Control of the U.K. Money Supply: Some Comments'