Endogenous Keynesian Business Cycles

Hans Jørgen Whitta-Jacobsen
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Hans Jørgen Whitta-Jacobsen: Institute of Economics, University of Copenhagen

No 02-15, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: It is shown that a nominal rigidity may work as a natural mechanism for rational expectations endogenous fluctuations. By a nominal rigidity is meant that some nominal price, here the nominal wage rate, does not adjust within each short period to equate supply and demand (of labor), but adjusts competitively between any two successive periods in response to the excess supply or demand in the first of the periods. Under circumstances that would otherwise exclude endogenous fluctuations, a certain degree of sluggishness in the adjustment of the nominal wage rate implies existence of such fluctuations. The required degree of sluggishness is not unrealistic. The rate of unemployment varies countercyclically along the fluctuations studied, and welfare concerns may motivate stabilization policies attempting at keeping the economy at a steady state, where unemployment is at the natural rate all the time.

Keywords: endogenous business cycles; nominal rigidity (search for similar items in EconPapers)
JEL-codes: E32 E63 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2002-02
New Economics Papers: this item is included in nep-pke
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Citations: View citations in EconPapers (3)

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