DP1779 Productivity Growth, Consumer Confidence and the Business Cycle

Author(s): Jean-Pierre Danthine, John B Donaldson, Thore Johnsen
Publication Date: January 1998
Keyword(s): Business Cycle, Consumption, Labour Productivity
JEL(s): E1, E2, E32
Programme Areas: International Macroeconomics

The objective of this paper is to provide, in the context of a dynamic general equilibrium model, an answer to the following five questions: 1) To what extent does an economy subject to regular variations in labour productivity growth differ from one where labour productivity is constant? 2) What is the impact on major macroeconomic indicators of a one-time change in labour productivity growth? 3) What are the business cycle implications of autonomous (non-falsifiable) changes in growth expectations? 4) What is the potential of such expectation changes for explaining the volatility of consumption to output ratio? 5) Can autonomous changes in growth expectations help us understand recent business cycle episodes?