Marco Guerrazzi

Expectations, Employment and Prices: A Suggested Interpretation of the New «Farmerian» Economics

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Keywords: Old keynesian economics, search, demand constrained equilibrium, Shimer puzzle, asset price stabilization.

This paper aims at providing a critical assessment of the New «Farmerian» economics, i.e., Farmer's attempt to provide a fresh micro-foundation of the General Theory grounded on modern search and business cycle theories with the goal of offering a rationale for finance-induced recessions. Specifically, I develop a model that summarizes the main arguments of the suggested approach by showing that a special importance has to be paid to the search mechanism, the choice of units and «animal spirits» modelling. Thereafter, referring to recent computational experiments, I discuss some possible empirical implications of the resulting framework. Finally, I put forward the lines for new theoretical and empirical developments by sketching the policy implications towards which the new Farmerian economics might lead.

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