Learning Asymmetries in Real Business Cycles

37 Pages Posted: 3 Nov 2008

See all articles by Stijn Van Nieuwerburgh

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

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Date Written: December 2004

Abstract

When a boom ends, the downturn is generally sharp and short. When growth resumes, theboom is more gradual. Our explanation rests on learning about productivity. When agentsbelieve productivity is high, they work, invest, and produce more. More production generates higher precision information. When the boom ends, precise estimates of the slowdown prompt decisive reactions: Investment and labor fall sharply. When growth resumes, low production yields noisy estimates of recovery. Noise impedes learning, slows recovery, and makes boomsmore gradual than downturns. A calibrated model generates growth rate asymmetry similar to macroeconomic aggregates. Fluctuations in agents' forecast precision match observed counter cyclical errors of forecasters.

Suggested Citation

Van Nieuwerburgh, Stijn and Veldkamp, Laura, Learning Asymmetries in Real Business Cycles (December 2004). NYU Working Paper No. FIN-05-025, Available at SSRN: https://ssrn.com/abstract=1294161

Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Laura Veldkamp

Columbia University - Columbia Business School ( email )

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New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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