This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.
Expectations, Employment and Prices: a Suggested Interpretation of the New 'Farmerian' Economics
GUERRAZZI, MARCO
2010-01-01
Abstract
This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.
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