Business Cycle Models with Indeterminacy [Paperback]

Three original models which explain business cycles as a result of self-fulfilling expectations are presented. The models are founded on the structure 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. It is demonstrated in all of the presented models that stylized facts of the business cycle can be reproduced.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 hlcí