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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, 2007. "Aggregate Demand and Supply," NBER Working Papers 13406, National Bureau of Economic Research, Inc.
  2. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  3. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  4. Farmer, Roger E A & Plotnikov, Dmitry, 2011. "Does Fiscal Policy Matter? Blinder and Solow Revisited," CEPR Discussion Papers 8189, C.E.P.R. Discussion Papers.
  5. Jordi Galí & Mark Gertler & J. David López-Salido, 2007. "Markups, Gaps, and the Welfare Costs of Business Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 44-59, November.
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  7. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Working Papers 341, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. 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.
  9. Roger E. A. Farmer, 2015. "The Stock Market Crash Really Did Cause the Great Recession," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(5), pages 617-633, October.
  10. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
  11. 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.
  12. Paul Beaudry & Franck Portier, 2006. "Stock Prices, News, and Economic Fluctuations," American Economic Review, American Economic Association, vol. 96(4), pages 1293-1307, September.
  13. 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.
  14. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
  15. 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.
  16. Schmitt-Grohé, Stephanie, 1999. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," CEPR Discussion Papers 2315, C.E.P.R. Discussion Papers.
  17. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  18. 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.
  19. 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.
  20. Farmer, Roger E.A., 2012. "The stock market crash of 2008 caused the Great Recession: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 693-707.
  21. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  22. Jess Benhabib & Pengfei Wang & Yi Wen, 2015. "Sentiments and Aggregate Demand Fluctuations," Econometrica, Econometric Society, vol. 83, pages 549-585, 03.
  23. Farmer, Roger E A, 2011. "Animal Spirits, Financial Crises and Persistent Unemployment," CEPR Discussion Papers 8439, C.E.P.R. Discussion Papers.
  24. 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.
  25. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  26. 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.
  27. 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.
  28. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  29. 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.
  30. Robert E. Hall, 1997. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
  31. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, Jan-Jun.
  32. Farmer, Roger E A, 2000. "Natural Rate Doubts," CEPR Discussion Papers 2426, C.E.P.R. Discussion Papers.
  33. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  34. 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.
  35. Pissarides, Christopher A, 1976. "Job Search and Participation," Economica, London School of Economics and Political Science, vol. 43(169), pages 33-49, February.
  36. Farmer, Roger, 2010. "Expectations, Employment and Prices," OUP Catalogue, Oxford University Press, number 9780195397901, December.
  37. 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.
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