News Impulses Drive Realistic Economic Fluctuations in Business Cycle Model
The article explores how news about future consumer demand or government spending can cause fluctuations in the economy. By using a model with variable capital utilization and increasing returns to scale, the researchers found that these news impulses can lead to realistic ups and downs in the economy. When the economy faces expected changes in productivity or technology, the model shows that the strength of people's willingness to save or spend needs to be increased for the economy to move in sync and match real-world data.