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Business Cycle Dynamics

Author

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  • Sebastian Wende

    (University of Adelaide, Ground Floor, Napier Building, Adelaide, SA 5005, Australia)

Abstract

This paper attempts to simulate endogenous cyclical behaviour through variations on the standard real business models. This paper relaxes the perfect foresight assumption implied by the rational agent hypothesis. It is replaced by imperfect adaptive expectations. The model is extended with a delay between investment and capital accumulation. This paper also simulates a non-equilibrium time-differential wage adjustment in a model economy. The models show that the boom produced by a single positive technology shock can be followed by the equivalent of a recession. The models are solved using numerical methods for differential equations, which allow for non-linear dynamics, as opposed to the usual log linearisation.

Suggested Citation

  • Sebastian Wende, 2009. "Business Cycle Dynamics," Economic Analysis and Policy, Elsevier, vol. 39(2), pages 205-234, September.
    • Handle: RePEc:eee:ecanpo:v39:y:2009:i:2:p:205-234
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    Keywords

    Endogenous cyclical behaviour; solving dynamic general equilibrium models and adaptive expectations;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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