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Indeterminacy in Real Business Cycle Models

In: Growth and Business Cycles with Equilibrium Indeterminacy

Author

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  • Kazuo Mino

    (Kyoto University Institute of Economic Research)

Abstract
The baseline real business cycle (RBC) model is a stochastic optimal growth model with flexible labor supply. The typical driving force of business fluctuations is a technological shock hitting the total factor productivity (TFP) of the aggregate economy in each period. In RBC models with equilibrium determinacy, the economy never fluctuates in response to non-fundamental shocks that only affect expatiations of households and firms. As discussed in the previous chapter, the necessary condition for the existence of sunspot-driven business cycles is that the equilibrium path of the economy is indeterminate.

Suggested Citation

  • Kazuo Mino, 2017. "Indeterminacy in Real Business Cycle Models," Advances in Japanese Business and Economics, in: Growth and Business Cycles with Equilibrium Indeterminacy, chapter 0, pages 19-54, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55609-1_2
    DOI: 10.1007/978-4-431-55609-1_2
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