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Explaining Speculative Expansions

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  • Xiao Wei

    (University of New Orleans)

Abstract

In this paper we use a modified neoclassical business cycle model to test two competing explanations of the expansion of the 1990s. The model can have indeterminate, multiple equilibria that give rise to expectation-driven business cycles. We fit into the model series of estimated speculative and productivity shocks and compare its predictions with empirical data. Our results suggest that the speculation hypothesis has more explanatory power than the productivity hypothesis in terms of matching the data. Speculative behavior of investors, therefore, may have contributed to the investment boom, the prolonged expansion, and the subsequent recession of the period 1991-2001.

Suggested Citation

  • Xiao Wei, 2004. "Explaining Speculative Expansions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-32, August.
    • Handle: RePEc:bpj:bejmac:v:contributions.4:y:2004:i:1:n:7
    DOI: 10.2202/1534-6005.1173
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    Cited by:

    1. Karnizova Lilia, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-50, June.
    2. Lilia Karnizova, 2013. "Letting the speculative and the news views of the Japanese business cycle compete," Economics Bulletin, AccessEcon, vol. 33(2), pages 1146-1158.

    More about this item

    Keywords

    Sunspots; Indeterminacy; Business Cycles; Speculation;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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