This paper constructs a stationary rational-expectations equilibrium in which an extraneous random variable, called animal spirits, causes fluctuations in unemployment. The model assumes costly matching in the labor market and a thin-market externality in the output market that makes the profitability of hiring depend positively on the number of firms hiring. The equilibrium does not rely on any effect of expected inflation on labor supply. It is also stable under learning; Bayesian updating induces convergence to the equilibrium with positive probability even if people start with no definite belief that animal spirits affect the profitability of hiring. Copyright 1992 by American Economic Association.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 82 (1992) Issue (Month): 3 (June) Pages: 493-507 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.