Explaining the Last Consumption Boom-Bust Cycle in Ireland : The Role of News and Noise Shocks

• Tác giả: Jose Luis Diaz Sanchez
• Ngôn ngữ: eng
• Ký hiệu phân loại: 338.54 Economic fluctuations
• Thông tin xuất bản: World Bank, Washington, DC, 2013
• Bộ sưu tập: Tài liệu truy cập mở
• ID: 303937
• Chủ đề: 1. AGGREGATE DEMAND; 2. BELIEFS; 3. BUSINESS CYCLES; 4. CENTRAL BANK; 5. CONSUMER EXPECTATIONS

Tóm tắt

The objective of the paper is to explain the last boom and bust in consumption in Ireland by the failure of consumers to correctly distinguish permanent changes in productivity from temporary changes. It uses a business cycle model, where agents update their beliefs about long-run productivity using information -that they receive continuously- about the future state of the economy. The analysis finds that a large and prolonged disconnect between consumption and long-run productivity occurred in the years leading to the economic crisis, which led to -- over-consumption -- for several quarters. A strong downward adjustment in 2008 followed when Irish consumers finally realized their mistake.