The macroeconomics of self-fulfilling prophecies Roger E. A. Farmer MIT Press, 1993, 259 pp.

In The Macroeconomics of Self-Fulfilling Prophecies, Roger Farmer argues that dynamic general equilibrium models represent a useful means for organizing and representing one's understanding of macroeconomic behavior. Reasonably small departures from the standard assumptions of Arrow-Debreu economies can lead to equilibria with non-trivial roles for macroeconomic policy. Farmer demonstrates through theory and example the potential for multiple equilibria, which he suggests can be treated by better specification of agents' beliefs. The existence of multiple equilibria creates the possibility of bounded fluctuations due to animal spirits or "self-fulfilling prophecies." The author is indebted to Robert Holland and Chris Waller for comments on a previous draft.