Animal spirits in a monetary model

Roger Farmer and Konstantin Platonov

European Economic Review, 2019, vol. 115, issue C, 60-77

Abstract: We integrate Keynesian economics with general equilibrium theory in a new way. We develop a simple graphical apparatus, the IS-LM-NAC framework, that can be used by policy makers to understand how policy affects the economy. A new element, the No-Arbitrage-Condition (NAC) curve, connects the interest rate to current and expected future values of the stock market and it explains how ‘animal spirits’ influence economic activity. Our framework provides a rich new approach to policy analysis that explains the short-run and long-run effects of policy.

Keywords: Animal spirits; Sunspots; Keynesian economics (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Animal Spirits in a Monetary Model (2016)
Working Paper: Animal Spirits in a Monetary Model (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:115:y:2019:i:c:p:60-77

DOI: 10.1016/j.euroecorev.2019.02.005

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