Expectations, Employment and Prices: A Suggested Interpretation of the New â€˜Farmerianâ€™ Economics
This paper aims at providing a critical assessment of the new â€˜Farmerianâ€™ economics, i.e. the recent Farmerâ€™s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and â€˜animal spiritsâ€™ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.
|Date of creation:||05 Jan 2011|
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