TY  - JOUR
AU  - Farmer,Roger E.A.
TI  - Confidence, Crashes and Animal Spirits
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14846
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14846
L1  - http://www.nber.org/papers/w14846.pdf
N1  - Author contact info:
Roger Farmer
UCLA
Department of Economics
Box 951477
Los Angeles, CA 90095-1477
Tel: 310/825-6547
Fax: 310/825-9528
E-Mail: rfarmer@econ.ucla.edu
AB  - This paper presents a model of the macroeconomy that reformulates what I take to be two important ideas from Keynes General Theory. The first is that there may be a continuum of steady state unemployment rates. The second is that beliefs select an equilibrium. I argue that search and matching costs in the labor market lead to the existence of a continuum of equilibria and I resolve the resulting indeterminacy by assuming that the beliefs of stock market participants are self-fulfilling. The paper reconciles Keynesian economics with general equilibrium theory without invoking the assumption of frictions that prevent wages and prices from reaching their equilibrium levels.
ER  -