Guerrazzi, Marco (2010): Expectations, employment and prices: a suggested interpretation of the new 'farmerian' economics.
Download (264kB) | Preview
This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.
|Item Type:||MPRA Paper|
|Original Title:||Expectations, employment and prices: a suggested interpretation of the new 'farmerian' economics|
|Keywords:||Old Keynesian Economics; search; demand constrained equilibrium; Shimer puzzle; economic policy.|
|Subjects:||E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity
|Depositing User:||Dr Marco Guerrazzi|
|Date Deposited:||10. May 2011 12:43|
|Last Modified:||27. Mar 2015 02:12|
Abel, A.B., Mankiw, N.G., Summers, L.H. and Zeckhauser, R. J. (1989), “Assessing Dynamic Efficiency: Theory and Evidence”, Review of Economic Studies, Vol. 56, No. 1, pp. 1-19.
Abraham, K. G. and Katz, L.F. (1986), “Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?”, Journal of Political Economy, Vol. 94, No. 3, pp. 507-522.
Barnichon, R. (2007), “The Shimer Puzzle and the Correct Identification of Productivity Shocks”, CEP Discussion Paper, No. 823.
Benassy, J-P. (1975), “Neo-Keynesian Disequilibrium Theory in a Monetary Economy”, Review of Economic Studies, Vol. 42, No. 4, pp. 503-523.
Cover, J.P. (1992), Asymmetric Effects of Positive and Negative Shocks, Quarterly Journal of Economics, Vol. 107, No. 4, pp. 1261-1282.
Diamond, P.A. (1982), “Aggregate Demand Management in Search Equilibrium”, Journal of Political Economy, Vol. 90, No. 5, pp. 881-894.
Drèze, J.H. (1975), “Existence of an Exchange Equilibrium Under Price Rigidities”, International Economic Review, Vol. 16, No. 2. pp. 301-320.
Farmer, R.E.A. (2008a), “Old Keynesian Economics”, in Farmer, R.E.A. (Ed.) Macroeconomics in the Small and the Large: Essays on Microfoundations, Macroeconomic Applications and Economic History in Honor of Axel Leijonhufvud, Edward Elgar Publishing, Northampton, MA, pp. 23-43.
Farmer, R.E.A. (2008b), Aggregate Demand and Supply, International Journal of Economic Theory, Vol. 4 , No. 1, pp. 77-93.
Farmer, R.E.A. (2009), “Confidence, Crashes and Animal Spirits”, mimeo.
Farmer, R.E.A. (2010a), “How to Reduce Unemployment: A New Policy Proposal”, Journal of Monetary Economics, Vol. 57, No. 5, pp. 557-572.
Farmer, R.E.A. (2010b), Expectations, Employment and Prices, Oxford University Press, New York, NY.
Farmer, R.E.A. (2010c), “Animal Spirits, Persistent Unemployment and the Belief Function”, NBER Working Paper, No. 16522.
Gelain, P. and Guerrazzi, M. (2010), “A DSGE Model from the Old Keynesian Economics: an Empirical Investigation”, Centre for Dynamic Macroeconomic Analysis, Working Paper Series, No. CDMA10/14.
Gertler, M., Sala, L. and Trigari, A. (2008), “An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining”, Journal of Money, Credit and Banking, Vol. 40, No. 8, pp. 1713-1764.
Guerrazzi, M. (2011), “Stochastic Dynamic and Matching in the Old Keynesian Economics: A Rationale for the Shimer Puzzle”, Metroeconomica, forthcoming.
Hosios, A.J. (1990), “On the Efficiency of Matching and Related Models of Search and Unemployment”, Review of Economic Studies, Vol. 57, No. 2, pp. 279-298.
Kaldor, N. (1955-1956), “Alternative Theories of Distribution”, Review of Economic Studies, Vol. 23, No. 2, pp. 83-100.
Keynes, J.M. (1936), The General Theory of Employment, Interest and Money, MacMillan and Company, London.
Kurz, M. (2008), “Beauty Contests Under Private Information and Diverse Beliefs: How Different?”, Journal of Mathematical Economics, Vol. 44, No. 7-8, pp. 762-784.
Kydland, F.E. and Prescott, E.C. (1982), “Time to Build and Aggregate Fluctuations”, Econometrica, Vol. 50, No. 6, pp. 1345-1370.
Leijonhufvud, A. (1968), On Keynesian Economics and the Economics of Keynes, Oxford University Press, New York, NY. Malinvaud, E. (1977), The Theory of Unemployment Reconsidered, Basil Blackwell, Oxford.
Moen, E.R. (1997), “Competitive Search Equilibrium”, Journal of Political Economy, Vol. 105, No. 2, pp. 385-411.
Mortensen, D.T. and Pissarides, C.A. (1994), “Job Creation and Job Destruction in the Theory of Unemployment”, Review of Economic Studies, Vol. 61, No. 3, pp. 397-415.
Shiller, R.J. (2005), Irrational Exuberance, 2nd edition, Princeton University Press.
Pissarides, C.A. (2000), Equilibrium Unemployment Theory, 2nd Edition, MIT Press, Cambridge, MA.
Shimer, R. (2005), “The Cyclical Behavior of Equilibrium Unemployment and Vacancies”, American Economic Review, Vol. 95, No. 1, pp. 25-48.
Solow, R.M. (1998), “What is Labour-Market Flexibility? What is it Good for?”, Proceedings of the British Academy, Vol. 97, pp. 189-211.
Solow, R.M. and Stiglitz, J.E. (1968), “Output, Employment, and Wages in the Short-Run”, Quarterly Journal of Economics, Vol. 82, No. 4, pp. 537-560.
Thoma, M.A. (1994), Subsamble Instability and Asymmetries in Money-Income Causality, Journal of Econometrics, Vol. 64, No. 1-2, pp. 279-306.