DP1779 | Productivity Growth, Consumer Confidence and the Business Cycle

Publication Date

31/01/1998

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Abstract

The objective of this paper is to provide, in the context of a dynamic general equilibrium model, an answer to the following five questions: 1) To what extent does an economy subject to regular variations in labour productivity growth differ from one where labour productivity is constant? 2) What is the impact on major macroeconomic indicators of a one-time change in labour productivity growth? 3) What are the business cycle implications of autonomous (non-falsifiable) changes in growth expectations? 4) What is the potential of such expectation changes for explaining the volatility of consumption to output ratio? 5) Can autonomous changes in growth expectations help us understand recent business cycle episodes?