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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)

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    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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    File URL: http://www.sv.uio.no/econ/english/research/memorandum/pdf-files/2011/Memo-03-2011.pdf
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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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    Related research

    Keywords: investments; business cycles; monetary policy;

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