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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Kallåk Anundsen , André & Sigurd Holmsen Krogh, Tord & Nymoen, Ragnar & Vislie, Jon, 2011. "Overdeterminacy and endogenous cycles: Trygve Haavelmo’s business cycle model and its implications for monetary policy," Memorandum 03/2011, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2011_003
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    File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2011/Memo-03-2011.pdf
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    References listed on IDEAS

    as
    1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    2. 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.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    4. T. Haavelmo, 1949. "A Note on the Theory of Investment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 16(2), pages 78-81.
    5. 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, March.
    6. Elster Jon, 2009. "Excessive Ambitions," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-33, October.
    7. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo Group, vol. 56(4), pages 465-497, December.
    8. Bjerkholt, Olav, 2007. "Writing “The Probability Approach” With Nowhere To Go: Haavelmo In The United States, 1939–1944," Econometric Theory, Cambridge University Press, vol. 23(5), pages 775-837, October.
    9. repec:rnp:ecopol:09111 is not listed on IDEAS
    10. Karl Ove Moene & Asbjorn Rodseth, 1991. "Nobel Laureate: Trygve Haavelmo," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 175-192, Summer.
    11. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    12. 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.
    13. repec:bla:scandj:v:92:y:1990:i:1:p:17-24 is not listed on IDEAS
    14. Haavelmo, Trygve, 1974. "What Can Static Equilibrium Models Tell Us?," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 27-34, March.
    15. Benassy, Jean-Pascal, 1986. "Macroeconomics: An Introduction to the Non-Walrasian Approach," Elsevier Monographs, Elsevier, edition 1, number 9780120864256 edited by Shell, Karl.
    16. Bjerkholt, Olav, 2005. "Frisch'S Econometric Laboratory And The Rise Of Trygve Haavelmo'S Probability Approach," Econometric Theory, Cambridge University Press, vol. 21(3), pages 491-533, June.
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    Cited by:

    1. Sheetal K. Chand, 2012. "The Relevance of Haavelmo's Macroeconomic Theorizing for Contemporary Macro Policy Making," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 37, pages 1-3.
    2. Chand, Sheetal K., 2012. "The Relevance of Haavelmo’s Macroeconomic Theorizing for Contemporary Policy Making," Memorandum 06/2012, Oslo University, Department of Economics.

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    More about this item

    Keywords

    investments; business cycles; monetary policy;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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