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Delay and cycles

delete1996-04-01
delete47
PRE
AI
D
Douglas Gale *
DOI：10.2307/2297849delete
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Abstract

Abstract

En 中文
When the profitability of investment depends on the general level of economic activity, entrepreneurs have an incentive to delay investments during a recession. Endogenous delay thus prolongs the recovery from a recession and heightens the effect of the boom. This paper describes a dynamic model that exhibits both delay and cycles and develops methods for analysing the role of delay in propogating business cycles. A number of interesting characteristics of the cycle are revealed. First, the effect of delay is asymmetric: it lengthens the recovery but not the downturn. Second, delay can increase the amplitude and typically reduces the frequency of the cycle. Third, it can reduce the average level of activity, but it achieves this effect by prolonging the recession rather than by reducing the amplitude of the cycle. The welfare effects of delay are ambiguous, however.
Keywords:
MONOPOLISTIC COMPETITION
AGGREGATE DEMAND
UNCERTAINTY
INVESTMENT
IRREVERSIBILITY
COORDINATION
FLUCTUATIONS
INFORMATION
EQUILIBRIUM
SEARCH
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AI Summary

Key information extracted from the uploaded paper, including a brief overview, abstract, background, key highlights, visual analysis, and future outlook.

Journal

Review of Economic Studies cover
Review of Economic Studies
IF:
6.4
Papers:
2.5K
Citations:
2.1W

Organization

No organization information available