Working Paper: NBER ID: w18284
Authors: Roger E.A. Farmer
Abstract: This paper distinguishes two kinds of Endogenous Business Cycle models; EBC1 models, which display dynamic indeterminacy, and EBC2 models, which display steady-state indeterminacy. Both strands of the literature have their origins in the sunspot literature that developed at the University of Pennsylvania in the 1980s. I argue that EBC1 models are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models provide a microfoundation to one of the most important ideas to emerge from Keynes' (1936) General Theory; that high involuntary unemployment can persist as part of the steady-state equilibrium of a market economy.
Keywords: No keywords provided
JEL Codes: B22; E0; E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| self-fulfilling beliefs (D83) | business cycle dynamics (E32) |
| EBC1 models (C59) | dynamic indeterminacy (D89) |
| EBC2 models (C59) | steady-state indeterminacy (C62) |
| self-fulfilling beliefs (D83) | GDP (E20) |
| self-fulfilling beliefs (D83) | employment (J68) |
| EBC2 models (C59) | involuntary unemployment (J64) |