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A NOTE ON GROWTH EXPECTATION

Published online by Cambridge University Press:  20 May 2009

Ippei Fujiwara
Ippei Fujiwara*
Affiliation:
Institute for Monetary and Economic Studies, Bank of Japan
*
Address correspondence to: Ippei Fujiwara, Institute for Monetary and Economic Studies, Bank of Japan, 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan; e-mail: ippei.fujiwara@boj.or.jp.
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Abstract

Recently, several researchers have succeeded in producing expectation–driven cycles by balancing the tension between the wealth effect and the substitution effect stemming from the higher expected future productivity. Especially, seminal research by Christiano et al. (“Monetary Policy and Stock Market Boom–Bust Cycles,” mimeo, Northwestern University, 2007), explains “stock market boom–bust cycles,” characterized by increases in consumption, labor inputs, investment, and stock prices relating to high expected future technology levels. We, however, show that such expectation–driven cycles are difficult to generate based on “growth expectation,” which reflects expectations of higher productivity growth rates.

Keywords

ExpectationsEquilibrium Business CycleTechnological Progress
Type
Notes
Information
Macroeconomic Dynamics , Volume 14 , Issue 2 , April 2010 , pp. 242 - 256
Copyright
Copyright © Cambridge University Press 2009

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