Business Cycle Models with Indeterminacy

Three original models which explain business cycles as a result of self-fulfilling expectations are presented. The models are founded on the structue of dynamic general equilibrium theory. Market power and increasing returns to scale are introduced which allow indeterminancy of the Rational Expectations equilibria to be obtained. Unlike the majority of existing literature on this subject, the departures from perfect markets and constant returns presented in these models are very low and, more importantly, at a realistic level to achieve the respective results.
The model is structured in the tradition of the Real Business Cycle approach to fluctuations. The time series of the stochastic version of the model act as a factor to measure success. However, shocks generally derive from demand disturbances (animal spirits) alone to produce these results. It is demonstrated in all of the presented models that stylized facts of the business cycle can be reproduced.

Inhalt

1 Introduction.- 1.1 Introduction.- 1.2 New methods of business cycle theory.- 1.2.1 Building blocks of new classical macroeconomics.- 1.2.2 Real Business Cycle theory.- 1.2.3 The quantitative method.- 1.3 Business cycle models with indeterminacy.- 1.3.1 Animal Spirits.- 1.3.2 Applying the new classical macroeconomics' methodology.- 1.3.3 Equilibrium solutions of linear rational expectations models: an informal discussion.- 1.3.4 An example of an artificial economy which can produce sunspots.- 1.3.5 The modelling of beliefs.- 1.3.6 Empirical evidence.- 1.3.7 Welfare and stabilization policy.- 1.4 Related work.- 1.4.1 One-sector models.- 1.4.2 Two-sector models.- 1.4.3 Indeterminacy in models of economic growth.- 1.5 Overview of dissertation.- 1.5.1 Chapter 2: Indeterminacy, business cycles and modest increasing returns to scale.- 1.5.2 Chapter 3: Self-fulfilling prophecies and economic fluctuations in a two-sectoral growth model.- 1.5.3 Chapter 4: Animal spirits, technology shocks and the business cycle.- 1.5.4 Conclusion.- 1.6 Appendix.- 1.6.1 The equilibrium solutions of linear rational expectations models: a formal discussion.- 2 Indeterminacy, Business Cycles and Modest Increasing Returns to Scale.- 2.1 Introduction.- 2.2 The model.- 2.2.1 The household.- 2.2.2 The firms.- 2.2.3 Returning to the households.- 2.3 The equilibrium dynamics.- 2.3.1 The steady state.- 2.3.2 The solution mechanism.- 2.4 Calibration.- 2.5 Results.- 2.5.1 Eigenvalues.- 2.6 Interpretation.- 2.7 Second moments.- 2.7.1 Population moments.- 2.7.2 Model moments.- 2.7.3 Model moments: results.- 2.7.4 The standard Real Business Cycle model.- 2.8 Conclusion.- 2.9 Appendix.- 2.9.1 The measure of returns to scale.- 2.9.2 The linearized version of the economy.- 3 Self-Fulfilling Prophecies and Business Cycles in a Two-Sector Stochastic Optimal Growth Model.- 3.1 Introduction.- 3.2 The model.- 3.2.1 The household.- 3.2.2 The firms.- 3.2.3 The equilibrium number of firms.- 3.2.4 The factor markets.- 3.3 The equilibrium dynamics.- 3.4 Calibration.- 3.4.1 Parameter calibration.- 3.4.2 Steady state calibration.- 3.5 Results.- 3.5.1 The model's qualitative dynamics.- 3.5.2 The model's quantitative dynamics.- 3.5.3 Comparing three models of the cycle.- 3.6 Conclusion.- 3.7 Appendix.- 3.7.1 Time Series.- 3.7.2 The loglinearized system.- 4 Animal Spirits, Technology Shocks and the Business Cycle.- 4.1 Introduction.- 4.2 The model.- 4.2.1 The household.- 4.2.2 The firms.- 4.2.3 The consumption goods sector.- 4.2.4 The investment goods sector.- 4.2.5 Factor markets in symmetric equilibrium.- 4.3 The equilibrium dynamics.- 4.3.1 The steady state of the economy.- 4.3.2 The solution mechanism.- 4.4 Calibration.- 4.5 Results.- 4.5.1 Eigenvalues.- 4.5.2 The economic intuition behind the results.- 4.6 Business cycle properties.- 4.6.1 Population moments.- 4.6.2 Model moments.- 4.7 Conclusion.- 4.8 Appendix.- 4.8.1 The Hodrick-Prescott filter.- 4.8.2 The approximated version of the economy.- 5 Conclusion.- 6 Bibliography.