Guerrazzi, Marco (2011): The animal spirits hypothesis and the BenhabibFarmer condition for indeterminacy.

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Abstract
This paper provides a selfcontained 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 increasingreturns BenhabibFarmer model by showing the possible suboptimality 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 selffulfilling.
Item Type:  MPRA Paper 

Original Title:  The animal spirits hypothesis and the BenhabibFarmer condition for indeterminacy 
Language:  English 
Keywords:  Maximum problems in continuous time; indeterminate equilibrium paths; selffulfilling prophecies. 
Subjects:  E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations ; Cycles C  Mathematical and Quantitative Methods > C0  General E  Macroeconomics and Monetary Economics > E2  Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21  Consumption ; Saving ; Wealth 
Item ID:  30673 
Depositing User:  Dr Marco Guerrazzi 
Date Deposited:  04. May 2011 12:16 
Last Modified:  30. Dec 2015 23:18 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/30673 