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A demand-driven search model with self-fulfilling expectations: the new 'Farmerian' framework under scrutiny

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  • Marco Guerrazzi
  • Paolo Gelain

Abstract

In this paper, we implement Bayesian econometric techniques to analyze a theoretical framework built along the lines of Farmer's micro-foundation of the General Theory . Specifically, we test the ability of a demand-driven search model with self-fulfilling expectations to match the behaviour of the US economy over the last 30 years. The main findings of our empirical investigation are the following. First, all over the period, our model fits data very well. Second, demand shocks are the most relevant in explaining the variability of concerned variables. In addition, our estimates reveal that a large negative demand shock caused the Great Recession via a sudden drop of confidence. Overall, those results are consistent with the main features of the New `Farmerian' Economics as well as to latest demand-side explanations of the finance-induced recession.

Suggested Citation

  • Marco Guerrazzi & Paolo Gelain, 2015. "A demand-driven search model with self-fulfilling expectations: the new 'Farmerian' framework under scrutiny," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 81-104, January.
  • Handle: RePEc:taf:irapec:v:29:y:2015:i:1:p:81-104
    DOI: 10.1080/02692171.2014.945993
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A demand-driven search model with self-fulfilling expectations: The new ‘Farmerian’ framework under scrutiny
      by Christian Zimmermann in NEP-DGE blog on 2014-05-16 23:26:09
    2. Animal Spirits: an Empirical Test
      by Roger Farmer in My Economic Window on 2014-05-20 04:08:00

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    Cited by:

    1. 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.

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    More about this item

    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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