Confidence, Crashes and Animal Spirits
AbstractThis paper presents a model of the macroeconomy that reformulates what I take to be two important ideas from Keynes General Theory. The first is that there may be a continuum of steady state unemployment rates. The second is that beliefs select an equilibrium. I argue that search and matching costs in the labor market lead to the existence of a continuum of equilibria and I resolve the resulting indeterminacy by assuming that the beliefs of stock market participants are self-fulfilling. The paper reconciles Keynesian economics with general equilibrium theory without invoking the assumption of frictions that prevent wages and prices from reaching their equilibrium levels.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 122 (2012)
Issue (Month): 559 (03)
Contact details of provider:
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Other versions of this item:
- E0 - Macroeconomics and Monetary Economics - - General
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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.:
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"Aggregate demand and supply,"
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The International Society for Economic Theory, vol. 4(1), pages 77-93.
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"Aggregate Demand Management in Search Equilibrium,"
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University of Chicago Press, vol. 90(5), pages 881-94, October.
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- Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
- Roger E. A. Farmer & Andrew Hollenhorst, 2006.
"Shooting the Auctioneer,"
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12584, National Bureau of Economic Research, Inc.
- Mark Gertler & Luca Sala & Antonella Trigari, 2008.
"An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining,"
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Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
- Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Working Papers 341, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Luca Sala & Antonella Trigari & Mark Gertler, 2007. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," 2007 Meeting Papers 353, Society for Economic Dynamics.
- Marcus Hagedorn & Iourii Manovskii, 2007.
"The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited,"
IEW - Working Papers
351, Institute for Empirical Research in Economics - University of Zurich.
- Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
- Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
- Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
- Farmer, Roger E. A. & Plotnikov, Dmitry, 2012.
"Does Fiscal Policy Matter? Blinder And Solow Revisited,"
Cambridge University Press, vol. 16(S1), pages 149-166, April.
- Farmer, Roger E A & Plotnikov, Dmitry, 2011. "Does Fiscal Policy Matter? Blinder and Solow Revisited," CEPR Discussion Papers 8189, C.E.P.R. Discussion Papers.
- Roger Farmer & Dmitry Plotnikov, 2012. "Does Fiscal Policy Matter? Blinder and Solow Revisited," 2012 Meeting Papers 73, Society for Economic Dynamics.
- Roger E.A. Farmer & Dmitry Plotnikov, 2010. "Does Fiscal Policy Matter? Blinder and Solow Revisited," NBER Working Papers 16644, National Bureau of Economic Research, Inc.
- Paolo Gelain & Marco Guerrazzi, 2010. "A DSGE Model from the Old Keynesian Economics: An Empirical Investigation," CDMA Working Paper Series 201014, Centre for Dynamic Macroeconomic Analysis.
- Farmer, Roger E A, 2010.
"Animal Spirits, Persistent Unemployment and the Belief Function,"
CEPR Discussion Papers
8100, C.E.P.R. Discussion Papers.
- Roger E.A. Farmer, 2010. "Animal Spirits, Persistent Unemployment and the Belief Function," NBER Working Papers 16522, National Bureau of Economic Research, Inc.
- Marco Guerrazzi, 2010. "Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle," Discussion Papers 2010/95, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
- Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
- Farmer, Roger E.A., 2010. "How to reduce unemployment: A new policy proposal," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 557-572, July.
- Farmer, Roger, 2010. "Expectations, Employment and Prices," OUP Catalogue, Oxford University Press, number 9780195397901.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Vulgarni Keynezianizam (4. dio)
by cronomy in Cronomy on 2012-11-16 07:42:45
- Krugman to Farmer: "Show Me Your Trailer, or I Won't Watch Your Movie"
by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2013-08-18 21:51:00
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