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Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession

Author

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  • Marco Guerrazzi

    (Department of Economics – DIEC, University of Genoa, Genoa, Italy)

Abstract

This paper develops a DSGE model with investment and capital accumulation build along demand-driven explanations of the Great Recession. Specifically, following Farmer (2013), I set forth a search framework in which households decide about consumption while firms decide about recruiting effort as well as investment. This setting closed with market clearing in good and asset markets has one less equation than unknowns. As a consequence, in order to solve such an indeterminacy, I assume that investment is driven by self-fulfilling expectations about the adjustment cost of capital. Consistently with the view of business cycles pushed by stock price fluctuations, this model has the potential to provide a more comprehensive rationale for the consumption–investment patterns observed during the years of the crisis

Suggested Citation

  • Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.
    • Handle: RePEc:anp:econom:v:16:y:2015:3:343_358
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    Cited by:

    1. Tafadzwa Ruzive & Thando Mkhombo & Simbarashe Mhaka & Nomahlubi Mavikela & Andrew Phiri, 2019. "Electricity Intensity and Unemployment in South Africa: A Quantile Regression Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 9(1), pages 31-40.
    2. Marco Guerrazzi, 2023. "Optimal growth with labor market frictions," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 961-987, December.
    3. Mbekeni Lutho & Phiri Andrew, 2020. "South African Unemployment in the Post-Financial Crisis Era: What are the Determinants?," Folia Oeconomica Stetinensia, Sciendo, vol. 20(2), pages 230-248, December.

    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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