Indeterminacy in Real Business Cycle Models

Kazuo Mino

Chapter Chapter 2 in Growth and Business Cycles with Equilibrium Indeterminacy, 2017, pp 19-54 from Springer

Abstract: Abstract The baseline real business cycle (RBC) model is a stochastic optimal growth model with flexible labor supply. The typical driving force of business fluctuations is a technological shock hitting the total factor productivity (TFP) of the aggregate economy in each period. In RBC models with equilibrium determinacy, the economy never fluctuates in response to non-fundamental shocks that only affect expatiations of households and firms. As discussed in the previous chapter, the necessary condition for the existence of sunspot-driven business cycles is that the equilibrium path of the economy is indeterminate.

Date: 2017
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DOI: 10.1007/978-4-431-55609-1_2

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