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Rousakis, Michail (2012) Essays on economic fluctuations. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk/record=b2661422~S1
Abstract
This thesis consists of two essays on economic
fluctuations.
The first essay (Chapter 2) explores the role of expectations in economic
fluctuations. It does so within a cashless, monetary, and competitive
economy featuring producers and consumers/workers with asymmetric information.
Only workers observe current productivity and hence they perfectly
anticipate prices, whereas all agents observe a noisy signal about long-run
productivity. Information asymmetries imply that monetary policy and consumers'
expectations have real effects. Non-fundamental, purely expectational
shocks are conventionally thought of as demand shocks. While this remains
a possibility, expectational shocks can also have the characteristics of supply
shocks: if positive, they increase output and employment, and lower in
flation.
Whether expectational shocks manifest themselves as demand or supply
shocks depends on the monetary policy pursued. Forward-looking policies
generate multiple equilibria in which the role of consumers' expectations is arbitrary.
Optimal policies restore the complete information equilibrium. They
do so by manipulating prices so that producers correctly anticipate their revenue
despite their uncertainty about current productivity. I design targets
for forward-looking interest-rate rules which restore the complete information
equilibrium for any policy parameters. In
flation stabilization per se is typically
suboptimal as it can at best eliminate uncertainty arising through prices.
This offers a motivation for the Dual Mandate of central banks.
The second essay (Chapter 3) shows that implementation cycles, introduced
in Shleifer (1986) , are possible in the presence of capital and the absence
of borrowing constraints. In a two-sector economy, patents on cost-saving ideas
which take the form of investment-specific technological change arrive exogenously
at a sequential, perfectly smooth rate: in odd-numbered periods, they reach a firm producing capital of type 1 and, in the even-numbered ones, a firm
producing capital of type 2 . Firms can make profits out of these once. While
the immediate appropriation (henceforth, "implementation") of patents is always
a possibility, for accordingly formed expectations, firms can alternatively
implement their patents simultaneously. This is because investment-specific
technological change naturally introduces a one-period discrepancy between
the time firms implement their patents and the time they receive revenue out
of them. The implementation of a patent implies a sharp fall in investment
which, in turn, causes a boom in current consumption. As a result, the consumption
boom takes place before the wealth boom. This not only eliminates
the need to smooth consumption away from the wealth boom to the period
before it as conjectured, but, further, it implies that the interest rate paid
when revenue is realized -and wealth expands- falls. Consequently, present
discounted profits rise and implementation cycles can become a possibility. In
a policy extension, I show that prolonging patent rights to two periods rules
out "implementation cycles" and may lead to a welfare improvement.
Item Type: | Thesis (PhD) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Library of Congress Subject Headings (LCSH): | Business cycles | ||||
Official Date: | March 2012 | ||||
Dates: |
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Institution: | University of Warwick | ||||
Theses Department: | Department of Economics | ||||
Thesis Type: | PhD | ||||
Publication Status: | Unpublished | ||||
Supervisor(s)/Advisor: | Polemarchakis, H. M. (Heraklis M.) | ||||
Sponsors: | Economic and Social Research Council (ESRC); George and Victoria Karelias Foundation; University of Warwick. Department of Economics | ||||
Extent: | xii, 176 leaves | ||||
Language: | eng |
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