Booms and busts: New Keynesian and behavioral explanations

Arbeitspapier

Capitalism is characterized by booms and busts. Periods of strong growth in output alternate with periods of declines in economic growth. Every macro-economic theory should attempt to explain these endemic business cycle movements. In this paper I present two paradigms that attempt to explain these booms and busts. One is the DSGE-paradigm in which agents have unlimited cognitive abilities. The other paradigm is a behavioural one in which agents are assumed to have limited cognitive abilities. These two types of models produce a radically different macroeconomic dynamics. I analyze these differences. I also study the different policy implications of these two paradigms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3293

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: General ; Business Fluctuations; Cycles ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: DSGE-model ; imperfect information ; heuristics ; animal spirits ; Konjunkturtheorie ; Dynamisches Gleichgewicht ; Ungleichgewichtstheorie ; Sunspot ; Verhaltensökonomik ; Unvollkommene Information ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Grauwe, Paul
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/46377
• Last update: 10.03.2025, 11:42 AM CET