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13:00 - 14:00 15 May 2013

Understanding Non-Inflationary Demand Driven Business Cycles} Paul Beaudry and Franck Portier


Room B06 | Drayton House (link Map)
30 Gordon Street | London | WC1H 0AN | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Franck Portier, Toulouse School of Economics

During the last thirty years, US business cycles have been characterized by countercyclical technology shocks and very low inflation variability. While the first fact runs counter to an RBC view of fluctuation and calls for demand shocks as a source of fluctuations, the second fact is difficult to reconcile with a New Keynesian model in which demand shocks are accommodated. In this paper we show that non-inflationary demand driven business cycles can be easily explained if one moves away from the representative agent framework on which the New Keynesian model and the RBC model are based. We show how changes in demand induced by changes in perceptions about the future can cause business cycle type fluctuations when agents are not perfectly mobile across sectors. As we use an extremely simple framework, we discuss the generality of the results and develop a modified New Keynesian model with non inflationary demand driven fluctuations.


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Seminar paper