The Evolution of Endogenous Business Cycles
35 Pages Posted: 28 Sep 2012
There are 3 versions of this paper
The Evolution of Endogenous Business Cycles
The Evolution of Endogenous Business Cycles
Date Written: August 2012
Abstract
This paper distinguishes between two kinds of Endogenous Business Cycle models, and discusses the evolution from first generation EBC1 models to second generation EBC2 models. I argue that EBC1 models, which display dynamic indeterminacy, are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models, which display steady-state indeterminacy, are a more radical departure from the classical Real Business Cycle model; they represent a return 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.
Keywords: indeterminacy, self-fulfilling propcheices, sunspots, unemployment
JEL Classification: B22, E20, E32
Suggested Citation: Suggested Citation
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