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Real business cycles and the animal spirits hypothesis. (English) Zbl 0802.90019
Summary: We calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy. These fluctuations are due to the self-fulfilling beliefs of investors which we call “animal spirits”. We compare the impulse response functions predicted by our model and by two other more standard models with a four- variable vector autoregression on U.S. data. Our animal spirits economy is the most sucessful of the three at matching broad features of the dynamic reponses in the data.

91B62 Economic growth models
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