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“Psychological” elements in business cycle theories: old approaches and new insights

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  • Niels Geiger

Abstract

This paper identifies a number of “psychological” elements in business cycle theories and shows how these components contribute to the theories’ results. It proceeds by discussing (i) which assumptions on behaviour were used, laying particular stress on expectations and confidence, money illusion, social preferences and interaction, and individual character traits; (ii) how they influenced and determined the theories’ results; and (iii) how more recent behavioural research provides a better and empirically grounded understanding of these factors. For each element, the possibility of incorporating new insights into older models is discussed, and references to work which already does so are given.

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  • Niels Geiger, 2016. "“Psychological” elements in business cycle theories: old approaches and new insights," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 23(3), pages 478-507, June.
    • Handle: RePEc:taf:eujhet:v:23:y:2016:i:3:p:478-507
    DOI: 10.1080/09672567.2014.951670
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    References listed on IDEAS

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    1. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
    2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    3. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    4. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
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    Cited by:

    1. T. Gerasimos S. & V. Erotokritos & Т. Герасимос С. & В. Эротокритос, 2017. "Предварительный поведенческий подход в таргетированию реальных доходов // A Tentative Behavioral Approach to Real Income Targeting," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 5(1), pages 17-31.
    2. Soldatos, Gerasimos T. & Varelas, Erotokritos, 2017. "Firms’ rational expectations, workers’ psychology, and monetary policy in a behavioral real business cycle model," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 129-139.

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