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Why Does Consumption Lead the Business Cycle?

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  • Wen, Yi

    (Cornell U)

Abstract

Consumption in the US leads output at the business cycle frequency. Standard RBC models predict the opposite. We show in this paper that the lack of an endogenous propagation mechanism that can support demand shocks is responsible for the discrepancy between RBC theory and data.

Suggested Citation

  • Wen, Yi, 2001. "Why Does Consumption Lead the Business Cycle?," Working Papers 01-08, Cornell University, Center for Analytic Economics.
    • Handle: RePEc:ecl:corcae:01-08
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    File URL: https://cae.economics.cornell.edu/consumption1.pdf
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    References listed on IDEAS

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    1. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
    2. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
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