The Evolution of Endogenous Business Cycles
27 Pages Posted: 22 Dec 2012 Last revised: 28 Jul 2022
There are 3 versions of this paper
The Evolution of Endogenous Business Cycles
The Evolution of Endogenous Business Cycles
The Evolution of Endogenous Business Cycles
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.
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