Market-Period Adjustments, Short-Run and Long-Run Dynamics: A Keynesian Theory of Real Business Cycles

In this paper, relying on the seminal Keynesian analysis of the market for goods, I aim at integrating the market-period adjustments of relative-price expectations with the short-run dynamics generated by the occurrence of demand shocks and the long-run dynamics implied by capital accumulation and supply shocks. Specifically, I build a dynamic setting in which output, (un)employment and real wages tend to converge towards a non-deterministic short-run equilibrium pinned down by long-run entrepreneurial expectations. Furthermore, calibrating the model economy by taking as reference the US economy, I show that the cyclical properties of the resulting theoretical framework are consistent with a number of observed business cycle regularities.