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A demand-driven search model with self-fulfilling expectations: The new `Farmerian' framework under scrutiny

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  • Gelain, Paolo
  • Guerrazzi, Marco

Abstract

In this paper, we implement Bayesian econometric techniques to analyze a theoretical framework built along the lines of Farmer's micro-foundation of the General Theory. Specifically, we test the ability of a demand-driven search model with self-fulfilling expectations to match the behaviour of the US economy over the last thirty years. The main findings of our empirical investigation are the following. First, all over the period, our model fits data very well. Second, demand shocks are the most relevant in explaining the variability of concerned variables. In addition, our estimates reveal that a large negative demand shock caused the Great Recession via a sudden drop of confidence. Overall, those results are consistent with the main features of the New 'Farmerian' Economics as well as to latest demand-side explanations of the finance-induced recession.

Suggested Citation

  • Gelain, Paolo & Guerrazzi, Marco, 2014. "A demand-driven search model with self-fulfilling expectations: The new `Farmerian' framework under scrutiny," MPRA Paper 55773, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55773
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A demand-driven search model with self-fulfilling expectations: The new ‘Farmerian’ framework under scrutiny
      by Christian Zimmermann in NEP-DGE blog on 2014-05-16 23:26:09
    2. Animal Spirits: an Empirical Test
      by Roger Farmer in My Economic Window on 2014-05-20 04:08:00

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    Cited by:

    1. Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.

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    More about this item

    Keywords

    New Farmerian Economics; Competitive search; Dynamic models; Bayesian estimation.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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