Cattle cycles, heterogeneous expectations and the age distribution of capital

This paper builds a dynamic forward-looking model describing the approximate 10-year cattle cycle. The theoretical model improves on existing models by (1) keeping track of the age distribution of the capital stock, (2) allowing for heterogeneous expectations, and (3) recognizing that cow-calf operators make investment decisions on both the cow and calf margins. The structural parameters are estimated with GMM techniques and used to produce impulse response functions which show that the model endogenously propagates shocks to produce 10-year cattle cycles without relying on shocks that hit every 10 years. Focusing solely on several major macroeconomic shocks, I also show that the model is capable of matching the timing and amplitude of the U.S. cattle cycle. (C) 2004 Elsevier B.V. All rights reserved.