Keynes’ Business Cycle: Animal Spirits and Crisis
AbstractToday, we are in the midst of the worst economic crisis since the Great Depression. Recovery has not been swift, and policymakers and citizens throughout the globe have turned to economists for answers. While in the mainstream, the general opinion is that the collapse was unpredictable and caused by exogenous events (i.e., poor policy decisions), those in the Post-Keynesian school not only raised voices of concern well before the crisis struck, but they have argued consistently that the problems we face are systemic. They base this conclusion on theories developed by John Maynard Keynes. This paper attempts to determine the primary factors creating instability by building and then analyzing a system dynamics model of Keynes’ explanation of the business cycle. It shows that the financial sector is key and that while, of course, exogenous factors can play critical roles, they are unnecessary: cycles are generated endogenously.
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Bibliographic InfoPaper provided by Texas Christian University, Department of Economics in its series Working Papers with number 201003.
Length: 37 pages
Date of creation: Mar 2010
Date of revision:
Keynes; business cycle; system dynamics;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-HPE-2010-10-30 (History & Philosophy of Economics)
- NEP-MAC-2010-10-30 (Macroeconomics)
- NEP-PKE-2010-10-30 (Post Keynesian Economics)
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