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Understanding Expectation-Driven Fluctuations: A Labor-Market Approach


  • I thank Yi Wen for helpful comments and discussions. I would also like to thank Paul Beaudry, Nir Jaimovich, Che Jiahua, Danyang Xie, two anonymous referees, and the Editor for helpful comments. Any remaining errors are my own responsibility. Financial support from the RGC Direct Allocation Grant at HKUST is gratefully acknowledged.


This paper presents a unified analysis of neoclassical models that can generate expectation-driven business cycles under anticipated future technology shocks (or news shocks). It shows that the ability or inability of various RBC models to generate positive comovement of aggregate variables hinges crucially on the structure of the labor market equilibrium. The analysis provides a simple and intuitive guide to understanding the existing literature and to searching for new models that can explain the data under news shocks.