Business Cycle Dynamics

Sebastian Wende

Economic Analysis and Policy, 2009, vol. 39, issue 2, 205-234

Abstract: This paper attempts to simulate endogenous cyclical behaviour through variations on the standard real business models. This paper relaxes the perfect foresight assumption implied by the rational agent hypothesis. It is replaced by imperfect adaptive expectations. The model is extended with a delay between investment and capital accumulation. This paper also simulates a non-equilibrium time-differential wage adjustment in a model economy. The models show that the boom produced by a single positive technology shock can be followed by the equivalent of a recession. The models are solved using numerical methods for differential equations, which allow for non-linear dynamics, as opposed to the usual log linearisation.

Keywords: Endogenous cyclical behaviour; solving dynamic general equilibrium models and adaptive expectations (search for similar items in EconPapers)
JEL-codes: C61 C63 D84 E32 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v39:y:2009:i:2:p:205-234

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