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The Evolution of Endogenous Business Cycles

  • Farmer, Roger E A

This paper distinguishes between two kinds of Endogenous Business Cycle models, and discusses the evolution from first generation EBC1 models to second generation EBC2 models. I argue that EBC1 models, which display dynamic indeterminacy, are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models, which display steady-state indeterminacy, are a more radical departure from the classical Real Business Cycle model; they represent a return to one of the most important ideas to emerge from Keynes’ (1936) General Theory; that high involuntary unemployment can persist as part of the steady-state equilibrium of a market economy.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9080.

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Date of creation: Aug 2012
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Handle: RePEc:cpr:ceprdp:9080
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  1. Roger E.A. Farmer & Dmitry Plotnikov, 2010. "Does Fiscal Policy Matter? Blinder and Solow Revisited," NBER Working Papers 16644, National Bureau of Economic Research, Inc.
  2. Roger E. A. Farmer, 2007. "Aggregate Demand and Supply," NBER Working Papers 13406, National Bureau of Economic Research, Inc.
  3. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
  4. Farmer, Roger E A, 2000. "Natural Rate Doubts," CEPR Discussion Papers 2426, C.E.P.R. Discussion Papers.
  5. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  6. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Chapters, in: Enhancing Productivity (NBER-CEPR-TCER-Keio conference) National Bureau of Economic Research, Inc.
  7. 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.).
  8. Jordi Galí & Mark Gertler & J. David López-Salido, 2002. "Markups, gaps, and the welfare costs of business fluctuations," Banco de Espa�a Working Papers 0204, Banco de Espa�a.
  9. Jordi Gali & Frank Smets & Raf Wouters, 2010. "Unemployment in an Estimated New Keynesian Model," 2010 Meeting Papers 126, Society for Economic Dynamics.
  10. Farmer, Roger E A, 2011. "The Stock Market Crash of 2008 Caused the Great Recession: Theory and Evidence," CEPR Discussion Papers 8617, C.E.P.R. Discussion Papers.
  11. Stephanie Schmitt-Grohe, 1999. "Endogenous business cycles and the dynamics of output, hours, and consumption," Departmental Working Papers 199915, Rutgers University, Department of Economics.
  12. Farmer, Roger, 2010. "Expectations, Employment and Prices," OUP Catalogue, Oxford University Press, number 9780195397901, March.
  13. Roger Farmer, 2011. "Animal Spirits, Financial Crises and Persistent Unemployment," NBER Working Papers 17137, National Bureau of Economic Research, Inc.
  14. Marco Guerrazzi, 2011. "Search And Stochastic Dynamics In The Old Keynesian Economics: A Rationale For The Shimer Puzzle," Metroeconomica, Wiley Blackwell, vol. 62(4), pages 561-586, November.
  15. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  16. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  17. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  18. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  19. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  20. Paolo Gelain & Marco Guerrazzi, 2010. "A DSGE Model from the Old Keynesian Economics: An Empirical Investigation," CDMA Working Paper Series 201014, Centre for Dynamic Macroeconomic Analysis.
  21. Pissarides, Christopher A, 1976. "Job Search and Participation," Economica, London School of Economics and Political Science, vol. 43(169), pages 33-49, February.
  22. Jess Benhabib & Pengfei Wang & Yi Wen, 2012. "Sentiments and Aggregate Demand Fluctuations," NBER Working Papers 18413, National Bureau of Economic Research, Inc.
  23. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  24. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S223-50, January.
  25. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  26. Farmer, Roger E A, 2013. "The Stock Market Crash Really Did Cause the Great Recession," CEPR Discussion Papers 9630, C.E.P.R. Discussion Papers.
  27. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, 07.
  28. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  29. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  30. Stephanie Schmitt-Grohé & Martín Uribe, 2012. "Pegs, Downward Wage Rigidity, and Unemployment: The Role of Financial Structure," NBER Working Papers 18223, National Bureau of Economic Research, Inc.
  31. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-62, December.
  32. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  33. 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.
  34. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  35. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  36. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  37. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
  38. Marco Guerrazzi, 2012. "The ‘Farmerian’ Approach to Ending a Finance-Induced Recession: Notes on Stability and Dynamics," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 41(1-2), pages 81-99, 02.
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