A CROSS-INDUSTRY EXAMINATION OF THE LUCAS MISPERCEPTIONS MODEL

By establishing the theoretical connection between sectoral labor and product markets, we explicitly develop the economic relationship of these markets within the imperfect information new classical explanation of business-cycles. We then conduct an empirical analysis of the short-run cyclical behavior of real output, prices and wages at the sectoral level of disaggregation. We estimate both time-series and cross-sectional regressions for 28 private two-digit Standard Industrial Classification (SIC) industries. Industry-specific demand variability does not induce a greater misperception of aggregate demand shocks that would differentiate cyclical fluctuations across industries as hypothesized by the new classical imperfect-information explanation.