Citation

Discussion Paper Details

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Title: Pigouvian Cycles

Author(s): Renato Faccini and Leonardo Melosi

Publication Date: December 2018

Keyword(s): Bayesian estimation, employment gap, Identification of shocks, labor market trends, noise shocks, TFP news and the Great Recession

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Low-frequency variations in current and expected unemployment rates are important to identify TFP news shocks and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by changes in expectations unrelated to TFP fundamentals. The model predicts that the start (end) of most U.S. recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.

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Bibliographic Reference

Faccini, R and Melosi, L. 2018. 'Pigouvian Cycles'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13370