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Overdeterminacy and endogenous cycles: Trygve Haavelmo’s business cycle model and its implications for monetary policy

  • Kallåk Anundsen , André

    ()

    (Dept. of Economics, University of Oslo)

  • Sigurd Holmsen Krogh, Tord

    ()

    (Dept. of Economics, University of Oslo)

  • Nymoen, Ragnar

    ()

    (Dept. of Economics, University of Oslo)

  • Vislie, Jon

    ()

    (Dept. of Economics, University of Oslo)

This paper presents the business cycle model that Trygve Haavelmo developed as part of his research program in macroeconomic and monetary theory. Driven by a mismatch between the marginal return to capital and the rate of return required by capital owners, this model generates endogenous cycles. The theory leads to a distinct analysis of the scope and limitations of monetary policy. A main message of the model is that care should be taken when conducting 'autonomous' monetary policy and that special emphasis should be put on the soundness of nancial mar- kets. Adopting a strict nominal anchor as the main objective of monetary policy might generate imbalances in the capital market.

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2011/Memo-03-2011.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 03/2011.

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Length: 28 pages
Date of creation: 10 Mar 2011
Date of revision:
Handle: RePEc:hhs:osloec:2011_003
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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  1. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  2. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220.
  3. Karl Ove Moene & Asbjorn Rodseth, 1991. "Nobel Laureate: Trygve Haavelmo," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 175-192, Summer.
  4. Elster Jon, 2009. "Excessive Ambitions," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-33, October.
  5. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  6. Bjerkholt, Olav, 2005. "Frisch'S Econometric Laboratory And The Rise Of Trygve Haavelmo'S Probability Approach," Econometric Theory, Cambridge University Press, vol. 21(03), pages 491-533, June.
  7. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  8. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, October.
  9. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  11. Haavelmo, Trygve, 1974. "What Can Static Equilibrium Models Tell Us?," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 27-34, March.
  12. Nerlove, Marc, 1990. " Trygve Haavelmo: A Critical Appreciation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(1), pages 17-24.
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