The animal spirits hypothesis and the Benhabib–Farmer condition for indeterminacy
AbstractThis paper provides a self-contained review of the introduction of the animal spirits hypothesis into the infinite horizon optimal‐growth model. The analysis begins with an economic discussion of Pontryagin's maximum principles. Thereafter, I develop a version of the increasing-returns Benhabib–Farmer model by showing the possible sub-optimality of the central planner solution and deriving the bifurcation condition for indeterminacy. Moreover, I give some insights on how to model intrinsic and extrinsic uncertainty. Finally, analyzing the equilibrium condition of the labor market, I provide an intuitive rationale for the mechanism that in this model might lead prophecies to be self-fulfilling.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Maximum problems in continuous time; Indeterminate equilibrium paths; Self-fulfilling prophecies;
Other versions of this item:
- Guerrazzi, Marco, 2011. "The animal spirits hypothesis and the Benhabib-Farmer condition for indeterminacy," MPRA Paper 30673, University Library of Munich, Germany.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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