Working Paper: NBER ID: w12710
Authors: Paul Beaudry; Fabrice Collard; Franck Portier
Abstract: Gold rushes are periods of economic boom, generally associated with large increases in expenditures aimed at securing claims near new found veins of gold. An interesting aspect of gold rushes is that, from a social point of view, much of the increased activity is wasteful since it contributes simply to the expansion of the stock of money. In this paper, we explore whether business cycle fluctuations may sometimes be driven by a phenomenon akin to a gold rush. In particular, we present a model where the opening of new market opportunities causes an economic expansion by favoring competition for market share, which is essentially a dissolution of rents. We call such an episode a market rush. We construct a simple model of a market rush that can be embedded into an otherwise standard Dynamic General Equilibrium model, and show how market rushes can help explain important features of the data. We use a simulated-moment estimator to quantify the role of market rushes in fluctuations. We find that market rushes may account for over half the short run volatility in hours worked and a third of the short run volatility of output.
Keywords: business cycles; market rushes; economic fluctuations
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| opening of new market opportunities (D40) | economic expansions (E32) |
| expectations about new markets (D84) | fluctuations in economic activity (E32) |
| market rushes (G10) | volatility in hours worked (J22) |
| market rushes (G10) | volatility of output (E23) |
| market expectations (D84) | current economic activity (E20) |
| expansion in variety (L15) | productivity gains (O49) |