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THE EVOLUTION OF ENDOGENOUS BUSINESS CYCLES

Published online by Cambridge University Press:  03 July 2014

Roger E.A. Farmer
Roger E.A. Farmer*
Affiliation:
University of California, Los Angeles
*
Address correspondence to: Roger E.A. Farmer, Department of Economics, University of California, Los Angeles, 8283 Bunche Hall, Box 951477, Los Angeles, CA 90095-1477, USA; e-mail: rfarmer@econ.ucla.edu.
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Abstract

This paper distinguishes two kinds of endogenous business cycle models: EBC1 models, which display dynamic indeterminacy, and EBC2 models, which display steady-state indeterminacy. Both strands of the literature have their origins in the sunspot literature that developed at the University of Pennsylvania in the 1980s. I argue that EBC1 models are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models provide a microfoundation for one of the most important ideas to emerge from Keynes's (1936) General Theory of Employment, Interest and Money: that high involuntary unemployment can persist as part of the steady-state equilibrium of a market economy.

Keywords

UnemploymentSelf-Fulfilling PropheciesHysteresisKeynesian Economics
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 2: Complexity in Economic Systems , March 2016 , pp. 544 - 557
Copyright
Copyright © Cambridge University Press 2014 

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