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The Evolution of Endogenous Business Cycles

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  • Farmer, Roger

Abstract

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

  • Farmer, Roger, 2012. "The Evolution of Endogenous Business Cycles," CEPR Discussion Papers 9080, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9080
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Indeterminacy; Self-fulfilling propcheices; Sunspots; Unemployment;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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