The Indeterminacy Agenda in Macroeconomics

Publication date: 5 Jun 2019 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Farmer, R | JEL Classification: D5, E40 | NIESR Discussion Paper Number: 507

This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the self-fulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes’ General Theory that does not rely on the assumption that prices and wages are costly to change.

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Keyword tags: 
macroeconomics
multiple equilibria
psychology
business cycles
labour and capital

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