On Endogenous Competitive Business Cycles
STANFORD UNIV CA INST FOR MATHEMATICAL STUDIES IN THE SOCIAL SCIENCES
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The belief that the long run equilibrium of a competitive monetary economy that does not experience any exogenous shocks - whether originating from the external environment or from policy - should be modelled as a state that is stationary or perhaps growing at a constant rate, seems to be deeply rooted in the mind of economists. The purpose of this work is to demonstrate that, by contrast to currently accepted views, a competitive monetary economy of which the environment is stationary may undergo persistent and large deterministic fluctuations under laisser faire. That these cyclical fluctuations may display moreover the sort of correlations that recent Classical macro-economic models have seeked to incorporate, without having to make the ad hoc assumption that cycles are due to exogenous shocks. And finally, that the Government, in the face of such autonomous deterministic fluctuations, has indeed in principle the power to stabilize the economy by implementing simple deterministic - and publicly known - countercyclical policies.
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