TY - JOUR
T1 - Delay and Cycles
AU - Gale, Douglas
N1 - Funding Information:
itisdearthatEI=0ispossibleonlyif15=IandX, 1=EI1=N.However,E, 1=NimpliesthatEI~2=N,and from Lemma 2, this implies X12~ 6, a contradiction. E, is bounded away from N for all t. Then Lemma 3 implies that XI is bounded away from 0 for all t. Then the equilibrium payoff is actually attained by every agent, since a positive measure of machines is put into operation every date. This completes the proof that (E, V, X) and V constitute an equilibrium. II Acknowledgements. EarlierversionsofthispaperwerepresentedinseminarsatBostonUniversity,Boston College, Cornell University, the London School of Economics, M.IT., New York University, Northwestern TJniversity, the University of Pennsylvania, and Stanford University. Francisco Gonzalez and Bhaskar Chattaraj provided valuable research assistance and I have benefited from conversations with Christophe Charnley, Russell Cooper, John Leahy, and Robert Rosenthal as well as helpful comments from the seminar participants. The financial support of the National Science Foundation under Grant No. SBR 9222194 is gratefully acknowledged.
PY - 1996
Y1 - 1996
N2 - 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.
AB - 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.
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U2 - 10.2307/2297849
DO - 10.2307/2297849
M3 - Article
AN - SCOPUS:0001454607
SN - 0034-6527
VL - 63
SP - 169
EP - 198
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 2
ER -