The Evolution of Endogenous Business Cycles

27 Pages Posted: 22 Dec 2012 Last revised: 28 Jul 2022

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Date Written: December 21, 2012

Abstract

This working paper was written by Roger E. A. Farmer (University of California, Los Angeles).

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.

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, The Evolution of Endogenous Business Cycles (December 21, 2012). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 30/2012, Available at SSRN: https://ssrn.com/abstract=2192352 or http://dx.doi.org/10.2139/ssrn.2192352

Hong Kong Institute for Monetary and Financial Research (Contact Author)

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