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  3. American Economic Journal: Macroeconomics
  4. April 2022
  5. Pigouvian Cycles

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Pigouvian Cycles

  • Renato Faccini
  • Leonardo Melosi
American Economic Journal: Macroeconomics
vol. 14, no. 2, April 2022
(pp. 281–318)
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Abstract

Current and expected unemployment rates contain information that is highly useful to estimate the effect of news about TFP 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 noise about TFP. These results emerge because of the low-frequency negative relationship between unemployment and TFP growth. The model predicts that the start (end) of most US recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.

Citation

Faccini, Renato, and Leonardo Melosi. 2022. "Pigouvian Cycles." American Economic Journal: Macroeconomics 14 (2): 281–318. DOI: 10.1257/mac.20190467

Additional Materials

JEL Classification

  • E21 Macroeconomics: Consumption; Saving; Wealth
  • E22 Investment; Capital; Intangible Capital; Capacity
  • E23 Macroeconomics: Production
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E52 Monetary Policy