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An Equilibrium Theory of the Business Cycle Under Certainty

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  • Martins, M.A.C.

Abstract

This paper develops a full-employment theory of the business cycle in the context of a simple equilibrium dynamic monetary model with complete information, overlapping generations and production processes. This theory is founded on three basic notions: (a.) economic agents plan to limit their own freedom of action; (b) it takes time to produce one unit of output; the productive input can be employed on alternative discrete overlapping production processes at each point in time. According to this theory, fully anticipated monetary shocks cause the kind of movements in outputs, prices and nominal incomes, which are well known as the business cyde.

Suggested Citation

  • Martins, M.A.C., 1989. "An Equilibrium Theory of the Business Cycle Under Certainty," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 9(2), November.
    • Handle: RePEc:sbe:breart:v:9:y:1989:i:2:a:3074
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    1. Karni, Edi, 1980. "A Note on Lucas's Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1231-1236, December.
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    3. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-1190, December.
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