The animal spirits hypothesis and the Benhabib-Farmer condition for indeterminacy

Marco Guerrazzi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides a self-contained review of the introduction of the animal spirits hypothesis into the infinite horizon optimal growth model. The analysis begins with an economic discussion of Pontryagin’s maximum principles. Thereafter, I develop a version of the increasing-returns Benhabib-Farmer model by showing the possible sub-optimality of the central planner solution and deriving the bifurcation condition for indeterminacy. Moreover, I give some insights on how to model intrinsic and extrinsic uncertainty. Finally, analysing the equilibrium condition of the labour market, I provide an intuitive rationale for the mechanism that in this model might lead prophecies to be self-fulfilling.

Keywords: Maximum problems in continuous time; indeterminate equilibrium paths; self-fulfilling prophecies. (search for similar items in EconPapers)
JEL-codes: C0 E21 E32 (search for similar items in EconPapers)
Date: 2011-05-01
New Economics Papers: this item is included in nep-dge
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Related works:
Journal Article: The animal spirits hypothesis and the Benhabib–Farmer condition for indeterminacy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30673

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