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News shocks and learning-by-doing

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Published/Copyright: March 5, 2014
The B.E. Journal of Macroeconomics
From the journal The B.E. Journal of Macroeconomics Volume 14 Issue 1

Abstract

The idea that expectations about future economic fundamentals can drive business cycles dates back to the early 20th century. However, the standard real business cycle (RBC) model fails to generate positive comovement in output, consumption, labor-hours and investment in response to news shocks. This paper proposes a simple and intuitive solution to this puzzling feature of the RBC model, based on a mechanism that has strong empirical support: learning-by-doing (LBD). First, we show that the one-sector RBC model augmented by LBD can generate aggregate comovement in response to news shock about technology. Second, we show that in the two-sector RBC model, LBD along with an intratemporal adjustment cost can generate sectoral comovement in response to news about three types of shocks: i) neutral technology shock, ii) consumption technology shock, and iii) investment technology shock. We show that these results hold for contemporaneous technology shocks and for different specifications of LBD.

Keywords: learning-by-doing; news shocks; Pigou cycles
Corresponding author: Hammad Qureshi, The Brattle Group, 1850 M Street NW, Washington, DC 20036, USA, e-mail:

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Published Online: 2014-3-5
Published in Print: 2014-1-1

©2014 by De Gruyter

Articles in the same Issue

  1. Frontmatter
  2. Advances
  3. Optimal portfolios with wealth-varying risk aversion in the neoclassical growth model
  4. Inventories and the stockout constraint in general equilibrium
  5. Optimal second best taxation of addictive goods in dynamic general equilibrium: a revenue raising perspective
  6. Inflation effects on capital accumulation in a model with residential and non-residential assets
  7. Optimal capital-income taxation in a model with credit frictions
  8. Contributions
  9. Interest rate fluctuations and equilibrium in the housing market
  10. News shocks and learning-by-doing
  11. Capacity utilization and the effects of energy price increases in Japan
  12. Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns
  13. Optimal policy and Taylor rule cross-checking under parameter uncertainty
  14. The impact of American and British involvement in Afghanistan and Iraq on health spending, military spending and economic growth
  15. Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience
  16. The skill bias of technological change and the evolution of the skill premium in the US since 1970
  17. Aggregate impacts of recent US natural gas trends
  18. Organizational learning and optimal fiscal and monetary policy
  19. Industrial specialization, financial integration and international consumption risk sharing
  20. Leverage, investment, and optimal monetary policy
  21. Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate
  22. Temporal aggregation and estimated monetary policy rules
  23. International transmission of productivity shocks with nonzero net foreign debt
  24. Did the euro change the effect of fundamentals on growth and uncertainty?
  25. Topics
  26. Real factor prices and factor-augmenting technical change
  27. Monetary policy and TIPS yields before the crisis
https://doi.org/10.1515/bejm-2012-0076
Keywords for this article
learning-by-doing; news shocks; Pigou cycles

Articles in the same Issue

  1. Frontmatter
  2. Advances
  3. Optimal portfolios with wealth-varying risk aversion in the neoclassical growth model
  4. Inventories and the stockout constraint in general equilibrium
  5. Optimal second best taxation of addictive goods in dynamic general equilibrium: a revenue raising perspective
  6. Inflation effects on capital accumulation in a model with residential and non-residential assets
  7. Optimal capital-income taxation in a model with credit frictions
  8. Contributions
  9. Interest rate fluctuations and equilibrium in the housing market
  10. News shocks and learning-by-doing
  11. Capacity utilization and the effects of energy price increases in Japan
  12. Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns
  13. Optimal policy and Taylor rule cross-checking under parameter uncertainty
  14. The impact of American and British involvement in Afghanistan and Iraq on health spending, military spending and economic growth
  15. Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience
  16. The skill bias of technological change and the evolution of the skill premium in the US since 1970
  17. Aggregate impacts of recent US natural gas trends
  18. Organizational learning and optimal fiscal and monetary policy
  19. Industrial specialization, financial integration and international consumption risk sharing
  20. Leverage, investment, and optimal monetary policy
  21. Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate
  22. Temporal aggregation and estimated monetary policy rules
  23. International transmission of productivity shocks with nonzero net foreign debt
  24. Did the euro change the effect of fundamentals on growth and uncertainty?
  25. Topics
  26. Real factor prices and factor-augmenting technical change
  27. Monetary policy and TIPS yields before the crisis
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