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Overdeterminacy and Endogenous Cycles: T rygve H aavelmo's Business Cycle Model
Author(s) -
Anundsen André K.,
Krogh Tord S.,
Nymoen Ragnar,
Vislie Jon
Publication year - 2014
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12049
Subject(s) - economics , business cycle , monetary economics , market liquidity , asset (computer security) , recession , capital (architecture) , microeconomics , keynesian economics , computer security , archaeology , computer science , history
The econometrician T rygve H aavelmo pursued a research programme in macroeconomic theory that was highly original for its time. We present his macro model for an economy with deregulated financial markets and a policy determined interest rate path. Disequilibria arise in the interface between asset markets and the real economy. A mismatch between the marginal return to capital and investors' required rate generates endogenous switching between recession and full employment regimes. Haavelmo regarded the ‘switching mechanism’ as a substitute for liquidity constraints, and together with his ideas of price dynamics, there is a clear K eynesian and W icksellian influence on his macroeconomic theorizing.