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Endogenous Keynesian Business Cycles

Author

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  • Hans Jørgen Whitta-Jacobsen

    (Institute of Economics, University of Copenhagen)

Abstract

It is shown that a nominal rigidity may work as a natural mechanism for rational expectations endogenous fluctuations. By a nominal rigidity is meant that some nominal price, here the nominal wage rate, does not adjust within each short period to equate supply and demand (of labor), but adjusts competitively between any two successive periods in response to the excess supply or demand in the first of the periods. Under circumstances that would otherwise exclude endogenous fluctuations, a certain degree of sluggishness in the adjustment of the nominal wage rate implies existence of such fluctuations. The required degree of sluggishness is not unrealistic. The rate of unemployment varies countercyclically along the fluctuations studied, and welfare concerns may motivate stabilization policies attempting at keeping the economy at a steady state, where unemployment is at the natural rate all the time.

Suggested Citation

  • Hans Jørgen Whitta-Jacobsen, 2002. "Endogenous Keynesian Business Cycles," Discussion Papers 02-15, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0215
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2002/0215.pdf/
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    Cited by:

    1. Escañuela Romana, Ignacio, 2016. "Azar, Determinismo e Indecidibilidad en la Teoría del Ciclo Económico [Randomness, Determinism and Undecidability in the Business Cycle Theory]," MPRA Paper 72978, University Library of Munich, Germany.
    2. Ignacio Escañuela ROMANA, 2016. "Randomness, Determinism and Undecidability in the Economic Cycle Theory," Journal of Economics and Political Economy, KSP Journals, vol. 3(4), pages 638-658, December.

    More about this item

    Keywords

    endogenous business cycles; nominal rigidity;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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