The Indeterminacy School in Macroeconomics

Roger Farmer

No 13745, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Indeterminacy School in Macroeconomics exploits the fact that macroeconomic models often display multiple equilibria to understand real-world phenomena. There are two distinct phases in the evolution of its history. The first phase began as a research agenda at the University of Pennsylvania in the U.S. and at CEPREMAP in Paris in the early 1980s. This phase used models of dynamic indeterminacy to explain how shocks to beliefs can temporarily influence economic outcomes. The second phase was developed at the University of California Los Angeles in the 2000s. This phase uses models of incomplete factor markets to explain how shocks to beliefs can permanently influence economic outcomes. The first phase of the Indeterminacy School has been used to explain volatility in financial markets. The second phase of the Indeterminacy School has been used to explain periods of high persistent unemployment. The two phases of the Indeterminacy School provide a microeconomic foundation to Keynes’ General Theory that does not rely on the assumption that prices and wages are sticky.

Keywords: Indeterminacy; Macroeconomics (search for similar items in EconPapers)
JEL-codes: D50 E3 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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