EXPECTATIONS, EMPLOYMENT AND PRICES: A SUGGESTED INTERPRETATION OF THE NEW ‘FARMERIAN’ ECONOMICS

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Marco Guerrazzi ORCID logo

https://doi.org/10.22495/rgcv1i4art1

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 microfoundation 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 selfmade 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.

Keywords: New ‘Farmerian’ Economics, Search Theory, Demand Constrained Equilibrium, Bubbles and Crashes

How to cite this paper: Guerrazzi, M. (2011). Expectations, employment and prices: A suggested interpretation of the new ‘Farmerian’ economics. Risk Governance and Control: Financial Markets & Institutions, 1(4), 7-18. https://doi.org/10.22495/rgcv1i4art1