Animal spirits and unemployment: a disequilibrium analysis |
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Authors: | Robert Jump |
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Institution: | 1. School of Economics, University of Kent, Canterbury, CT2 7NZ, UK
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Abstract: | The past decade has seen a number of advances in modelling disequilibrium dynamics. This paper draws on separate approaches to disequilibrium dynamics to demonstrate a Keynesian result concerning the formal relevance of “animal spirits” in production economies. Specifically, it is shown that a parameter that can be associated with the “animal spirits” of firms is crucial to the stability of full employment equilibrium in a production economy. This approach to “animal spirits” is different to that taken by recent New Keynesian DSGE-type models, but similar in spirit to “Old Keynesian” approaches, including that of the General Theory. The corollary of the main conclusion is that price flexibility is not a sufficient condition for convergence on full employment equilibrium. |
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