Animal Spirits in a Monetary Model

Roger Farmer
Authors registered in the RePEc Author Service: Konstantin Platonov ()

No 11197, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We integrate Keynesian economics with general equilibrium theory in a new way. Our approach differs from the prevailing New Keynesian paradigm in two ways. First, our model displays steady state indeterminacy. This feature allows us to explain persistent unemployment which we model as movements among the steady state equilibria of our model. Second, our model displays dynamic indeterminacy. This feature allows us to explain the real effects of nominal shocks by selecting a dynamic equilibrium where prices are slow to respond to unanticipated money supply disturbances. Price rigidity arises as part of a rational expectations equilibrium in which the equilibrium is selected by beliefs. To close our model, we introduce a new fundamental that we refer to as the belief function.

Keywords: Unemployment; Keynesian economics; Belief function; Animal spirits (search for similar items in EconPapers)
JEL-codes: E12 E3 E4 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-dge, nep-hpe, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Animal spirits in a monetary model (2019)
Working Paper: Animal Spirits in a Monetary Model (2016)
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