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, analysing the equilibrium condition of the labour market, I provide an intuitive rationale for the mechanism that in this model might lead prophecies to be self-fulfilling.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30673.
Date of creation: 01 May 2011
Date of revision:
Maximum problems in continuous time; indeterminate equilibrium paths; self-fulfilling prophecies.;
Other versions of this item:
- Guerrazzi, Marco, 2012. "The animal spirits hypothesis and the Benhabib–Farmer condition for indeterminacy," Economic Modelling, Elsevier, vol. 29(4), pages 1489-1497.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C0 - Mathematical and Quantitative Methods - - General
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
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.:
- Woodford, Michael, 1990.
"Learning to Believe in Sunspots,"
Econometric Society, vol. 58(2), pages 277-307, March.
- K. Shell, 1968. "Applications of Pontryagin's Maximum Principle of Economics," Working papers 16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992.
"On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems,"
Springer, vol. 2(1), pages 43-68, January.
- Timothy J. Kehoe & David K. Levine & Paul M. Romer, 1990. "On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems," Working Papers 436, Federal Reserve Bank of Minneapolis.
- Benhabib, Jess & Nishimura, Kazuo, 1998.
"Indeterminacy and Sunspots with Constant Returns,"
Journal of Economic Theory,
Elsevier, vol. 81(1), pages 58-96, July.
- Jess Benhabib & Roger E.A. Farmer, 1992.
"Indeterminacy and Increasing Returns,"
UCLA Economics Working Papers
646, UCLA Department of Economics.
- Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
- Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
- Ricardo J. Caballero & Richard K. Lyons, 1989.
"The Role of External Economies in U.S. Manufacturing,"
NBER Working Papers
3033, National Bureau of Economic Research, Inc.
- Caballero, R.J. & Lyons, R.K., 1989. "The Role Of External Economies In U.S. Manufacturing," Discussion Papers 1989_14, Columbia University, Department of Economics.
- Susanto Basu & John G. Fernald, 1996.
"Returns to scale in U.S. production: estimates and implications,"
International Finance Discussion Papers
546, Board of Governors of the Federal Reserve System (U.S.).
- Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
- Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
- Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-11, Sept.-Oct.
- Farmer, Roger E. A. & Jang-Ting, Guo, 1995.
"The econometrics of indeterminacy: an applied study,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 43(1), pages 225-271, December.
- Roger E.A. Farmer, 1994. "The Econometrics of Indeterminacy: An Applied Study," UCLA Economics Working Papers 720, UCLA Department of Economics.
- Boldrin, Michele & Rustichini, Aldo, 1994.
"Growth and Indeterminacy in Dynamic Models with Externalities,"
Econometric Society, vol. 62(2), pages 323-42, March.
- Michele Boldrin & Aldo Rustichini, 2010. "Growth and Indeterminacy in Dynamic Models with Externalities," Levine's Working Paper Archive 1382, David K. Levine.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Roger E.A. Farmer & Jang Ting Guo, 1992.
"Real Business Cycles and the Animal Spirits Hypothesis,"
UCLA Economics Working Papers
680, UCLA Department of Economics.
- Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Nicola Giammarioli, 2003. "Indeterminacy and search theory," Working Paper Series 271, European Central Bank.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Wiliam Branch & George W. Evans, 2005.
"A Simple Recursive Forecasting Model,"
University of Oregon Economics Department Working Papers
2005-3, University of Oregon Economics Department, revised 01 Feb 2005.
- Kamihigashi, Takashi, 1996. "Real business cycles and sunspot fluctuations are observationally equivalent," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 105-117, February.
- repec:fth:coluec:431 is not listed on IDEAS
- M Guerrazzi, 2008. "A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities," Economic Issues Journal Articles, Economic Issues, vol. 13(2), pages 37-58, September.
- Farmer, Roger E.A. & Woodford, Michael, 1997. "Self-Fulfilling Prophecies And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 1(04), pages 740-769, December.
- Tomoyuki Nakajima, 2003.
"Unemployment and Indeterminacy,"
2003-24, Brown University, Department of Economics.
- Dorfman, Robert, 1969. "An Economic Interpretation of Optimal Control Theory," American Economic Review, American Economic Association, vol. 59(5), pages 817-31, December.
- Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
- Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.