Discussion Paper Details

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Title: The Indeterminacy Agenda in Macroeconomics

Author(s): Roger E A Farmer

Publication Date: May 2019

Keyword(s): Indeterminacy and Macroeconomics

Programme Area(s): Monetary Economics and Fluctuations

Abstract: This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the self-fulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes' General Theory that does not rely on the assumption that prices and wages are costly to change.

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Bibliographic Reference

Farmer, R. 2019. 'The Indeterminacy Agenda in Macroeconomics'. London, Centre for Economic Policy Research.