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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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Working Paper: Animal Spirits in a Monetary Model (2016) Downloads
Working Paper: Animal Spirits in a Monetary Model (2016) Downloads
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DOI: 10.1016/j.euroecorev.2019.02.005

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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