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Overdeterminacy and endogenous cycles: Trygve Haavelmo’s business cycle model and its implications for monetary policy

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Author Info

  • Kallåk Anundsen , André

    ()
    (Dept. of Economics, University of Oslo)

  • Sigurd Holmsen Krogh, Tord

    ()
    (Dept. of Economics, University of Oslo)

  • Nymoen, Ragnar

    ()
    (Dept. of Economics, University of Oslo)

  • Vislie, Jon

    ()
    (Dept. of Economics, University of Oslo)

Abstract

This paper presents the business cycle model that Trygve Haavelmo developed as part of his research program in macroeconomic and monetary theory. Driven by a mismatch between the marginal return to capital and the rate of return required by capital owners, this model generates endogenous cycles. The theory leads to a distinct analysis of the scope and limitations of monetary policy. A main message of the model is that care should be taken when conducting 'autonomous' monetary policy and that special emphasis should be put on the soundness of nancial mar- kets. Adopting a strict nominal anchor as the main objective of monetary policy might generate imbalances in the capital market.

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Bibliographic Info

Paper provided by Oslo University, Department of Economics in its series Memorandum with number 03/2011.

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Length: 28 pages
Date of creation: 10 Mar 2011
Date of revision:
Handle: RePEc:hhs:osloec:2011_003

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Keywords: investments; business cycles; monetary policy;

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References

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  1. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  2. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  3. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  4. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220.
  5. Karl Ove Moene & Asbjorn Rodseth, 1991. "Nobel Laureate: Trygve Haavelmo," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 175-192, Summer.
  6. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  7. Elster Jon, 2009. "Excessive Ambitions," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-33, October.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  9. Haavelmo, Trygve, 1974. "What Can Static Equilibrium Models Tell Us?," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 27-34, March.
  10. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, octubre-d.
  11. Bjerkholt, Olav, 2005. "Frisch'S Econometric Laboratory And The Rise Of Trygve Haavelmo'S Probability Approach," Econometric Theory, Cambridge University Press, vol. 21(03), pages 491-533, June.
  12. Nerlove, Marc, 1990. " Trygve Haavelmo: A Critical Appreciation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(1), pages 17-24.
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Cited by:
  1. Sheetal K. Chand, 2012. "The Relevance of Haavelmo's Macroeconomic Theorizing for Contemporary Macro Policy Making," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 37, pages 3.
  2. Chand, Sheetal K., 2012. "The Relevance of Haavelmo’s Macroeconomic Theorizing for Contemporary Policy Making," Memorandum 06/2012, Oslo University, Department of Economics.

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