This paper attempts to simulate endogenous cyclical behaviour through variations on the standard real business models. This paper relaxes the perfect foresight assumption implied by the rational agent hypothesis. It is replaced by imperfect adaptive expectations. The model is extended with a delay between investment and capital accumulation. This paper also simulates a non-equilibrium time-differential wage adjustment in a model economy. The models show that the boom produced by a single positive technology shock can be followed by the equivalent of a recession. The models are solved using numerical methods for differential equations, which allow for non-linear dynamics, as opposed to the usual log linearisation.
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Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).
Volume (Year): 39 (2009) Issue (Month): 2 (September) Pages: 205-234 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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