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Behavioural economics is useful also in macroeconomics : the role of animal spirits

de Grauwe, Paul and Ji, Yuemei (2018) Behavioural economics is useful also in macroeconomics : the role of animal spirits. Comparative Economic Studies. ISSN 0888-7233

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Identification Number: 10.1057/s41294-018-0061-9

Abstract

Dynamic stochastic general equilibrium models are still dominant in mainstream macroeconomics, but they are only able to explain business cycle fluctuations as the result of exogenous shocks. This paper uses concepts from behavioural economics and discusses a New Keynesian macroeconomic model that generates endogenous business cycle fluctuations driven by animal spirits. Our discussion includes two applications. One is on the optimal level of inflation targeting under a zero lower bound constraint. The other is on the role of animal spirits in explaining the synchronization of business cycles across countries.

Item Type: Article
Official URL: https://link.springer.com/journal/41294
Additional Information: © 2018 Springer
Subjects: H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
Sets: Departments > European Institute
Date Deposited: 19 Mar 2018 13:01
Last Modified: 19 Mar 2018 16:36
URI: http://eprints.lse.ac.uk/id/eprint/87286

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