Overdeterminacy and endogenous cycles: Trygve Haavelmo’s business cycle model and its implications for monetary policy

Andre Anundsen (), Tord Sigurd Holmsen Krogh (), Ragnar Nymoen () and Jon Vislie
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Tord Sigurd Holmsen Krogh: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

No 03/2011, Memorandum from Oslo University, Department of Economics

Abstract: This paper presents the business cycle model that Trygve Haavelmo developed as part of his research program in macroeconomic and monetary theory. Driven by a mismatch between the marginal return to capital and the rate of return required by capital owners, this model generates endogenous cycles. The theory leads to a distinct analysis of the scope and limitations of monetary policy. A main message of the model is that care should be taken when conducting 'autonomous' monetary policy and that special emphasis should be put on the soundness of nancial mar- kets. Adopting a strict nominal anchor as the main objective of monetary policy might generate imbalances in the capital market.

Keywords: investments; business cycles; monetary policy (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 E52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-03-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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