Keynes’ Business Cycle: Animal Spirits and Crisis

John Harvey

No 201003, Working Papers from Texas Christian University, Department of Economics

Abstract: Today, we are in the midst of the worst economic crisis since the Great Depression. Recovery has not been swift, and policymakers and citizens throughout the globe have turned to economists for answers. While in the mainstream, the general opinion is that the collapse was unpredictable and caused by exogenous events (i.e., poor policy decisions), those in the Post-Keynesian school not only raised voices of concern well before the crisis struck, but they have argued consistently that the problems we face are systemic. They base this conclusion on theories developed by John Maynard Keynes. This paper attempts to determine the primary factors creating instability by building and then analyzing a system dynamics model of Keynes’ explanation of the business cycle. It shows that the financial sector is key and that while, of course, exogenous factors can play critical roles, they are unnecessary: cycles are generated endogenously.

Keywords: Keynes; business cycle; system dynamics (search for similar items in EconPapers)
JEL-codes: E12 E17 E32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-03
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.econ.tcu.edu/RePEc/tcu/wpaper/wp10-03.pdf First version, 2010 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tcu:wpaper:201003

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