Article ID Journal Published Year Pages File Type
5052936 Economic Analysis and Policy 2009 30 Pages PDF
Abstract

This paper attempts to simulate endogenous cyclical behaviour through variations on the standard real business models. This paper relaxes the perfect foresight assumption implied by the rational agent hypothesis. It is replaced by imperfect adaptive expectations. The model is extended with a delay between investment and capital accumulation. This paper also simulates a non-equilibrium time-differential wage adjustment in a model economy. The models show that the boom produced by a single positive technology shock can be followed by the equivalent of a recession. The models are solved using numerical methods for differential equations, which allow for non-linear dynamics, as opposed to the usual log linearisation.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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