University of California at Los Angeles
Institutional Affiliation: University of California at Los Angeles
Information about this author at RePEc
NBER Working Papers and Publications
|March 2016||Animal Spirits in a Monetary Model|
with Roger E.A. Farmer: w22136
We propose a fresh way of thinking about the monetary transmission mechanism. By integrating Keynesian economics with general equilibrium theory in a new way, we provide an alternative model and an alternative narrative to New-Keynesian economics to explain how macroeconomic policy influences prices and employment. We develop a simple graphical apparatus, the IS-LM-NAC framework, that can be used by policy makers to understand how policy affects the economy. A new element, the NAC curve, connects the interest rate to current and expected future values of the stock market and it explains how ‘animal spirits’ influence economic activity. Our framework provides a rich new approach to policy analysis that explains the short-run and long-run effects of policy, without the assumption that prices...
Published: Roger E.A. Farmer & Konstantin Platonov, 2019. "Animal Spirits in a Monetary Model," European Economic Review, .