 The importance of beliefs in shaping macroeconomic outcomesOxford Review of Economic Policy, 2020, vol. 36, issue 3, 675-711 Abstract: For the past 30 years of the history of macroeconomic thought, the Indeterminacy School of Macroeconomics has used general equilibrium models with indeterminate equilibria to understand the independent role of beliefs in shaping macroeconomic outcomes. In this paper I review the most recent advances in the indeterminacy agenda, Keynesian Search Theory, and I advance that agenda by introducing self-fulfilling beliefs to a Keynesian Search Model in two different ways. One variant of the model is driven by an exogenous process for investment expenditure. If investment is exogenous, the only way to restore full employment is by replacing private investment with public investment. The second variant of the model is driven by consumer confidence. If consumer confidence is exogenous, treasury or central bank intervention in the asset markets is a more effective means of restoring full employment than fiscal policy. In either scenario, increased government consumption will not be effective at maintaining full employment in the face of permanently depressed beliefs about the value of private assets. Keywords: Keynesian economics; indeterminacy school; involuntary unemployment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:oxford:v:36:y:2020:i:3:p:675-711. Access Statistics for this article Oxford Review of Economic Policy is currently edited by Christopher Adam More articles in Oxford Review of Economic Policy from Oxford University Press and Oxford Review of Economic Policy Limited |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.