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The Evolution of Endogenous Business Cycles

  • Roger E.A. Farmer

This paper distinguishes two kinds of Endogenous Business Cycle models; EBC1 models, which display dynamic indeterminacy, and EBC2 models, which display steady-state indeterminacy. Both strands of the literature have their origins in the sunspot literature that developed at the University of Pennsylvania in the 1980s. I argue that EBC1 models are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models provide a microfoundation 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18284.

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Date of creation: Aug 2012
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Handle: RePEc:nbr:nberwo:18284
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