Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession

Marco Guerrazzi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a DSGE model with investment and capital accumulation build along demand-driven explanations of the Great Recession. Specifically, following Farmer (2013), I set forth a search framework in which households decide about consumption while firms decide about recruiting effort as well as investment. This setting closed with market clearing in good and asset markets has one less equation than unknowns. Therefore, in order to solve such an indeterminacy, I assume that investment is driven by self-fulfilling expectations about the adjustment cost of capital. Consistently with the view of business cycles pushed by stock price fluctuations, this model has the potential to provide a more comprehensive rationale of the consumption-investment patterns observed during the years of the crisis.

Keywords: Investment; Capital accumulation; Finance-induced recession; Search, DSGE Models (search for similar items in EconPapers)
JEL-codes: E24 E32 E58 (search for similar items in EconPapers)
Date: 2015-05-23
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession (2015)
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