The spiritofcapitalismandexpectation-drivenbusinesscycles

While newsshocksarebelievedtobeinstrumentalinexplainingbusinesscycles,many existingmodelsfailtopredictaboominconsumption,investment,employment,output and assetpricesinresponsetogoodnewsaboutfutureproductivity.Amodelwiththe intrinsicdesireforwealthisshowntogeneratetheaforementionedresponses.Anews- driven boomisexplainedpredominantlybyanexpansionoflaborsupplyandis characterizedbythefallingrealwage.Thesimulatedmodelnotonlycaptureswell conventionalbusinesscyclestatistics,butalsoreproducescountercyclicalrealreturns and hump-shapedresponsesofhoursandoutputtoanunexpectedtechnologyshock.