CAN HERDING EXPLAIN CYCLIC CO-MOVEMENT?

Abstract

Recently, co-movement and the synchronised pattern of business cycles on various scales (sectoral, national, etc.) attract growing attention among macroeconomists. This paper integrates qualitative implications of a simple endogenously-timed herding model's logic into an investment cycle model. It is shown that this integrated argumentation is generally applicable for models that generate endogenous cyclic dynamics to explain the coupling of frequencies. Informational externalities induced by herding on the micro-level therefore seem to be an adequate argumentation behind business cycle models that capture co-movement by means of the so-called "mode-locking" mechanism.