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The Indeterminacy Agenda in Macroeconomics

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  • Roger E A Farmer

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Abstract

This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the selffulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes’ General Theory that does not rely on the assumption that prices and wages are costly to change.

Suggested Citation

  • Roger E A Farmer, 2019. "The Indeterminacy Agenda in Macroeconomics," National Institute of Economic and Social Research (NIESR) Discussion Papers 507, National Institute of Economic and Social Research.
  • Handle: RePEc:nsr:niesrd:507
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    Cited by:

    1. Federico Morelli & Michael Benzaquen & Marco Tarzia & Jean-Philippe Bouchaud, 2020. "Confidence Collapse in a Multi-Household, Self-Reflexive DSGE Model," Post-Print hal-02323098, HAL.
    2. Yoichiro Tamanyu, 2020. "The Role of Nonlinearity in Indeterminate Models: An Application to Expectations-Driven Liquidity Traps," Keio-IES Discussion Paper Series 2020-023, Institute for Economics Studies, Keio University.

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    More about this item

    Keywords

    macroeconomics; multiple equilibria; psychology; business cycles; labour and capital;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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