Free entry and business cycles under the influence of animal spirits

Rodolphe dos Santos Ferreira*, Frédéric Dufourt

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

Abstract

We provide a business cycle model in which endogenous markup fluctuations are the main driving force. These fluctuations occur due to some form of 'animal spirits', impelling firms in their entry-exit decisions within each sector. By contrast to existing models of the business cycle emphasizing the role of animal spirits, we do not rely on the sink property of the equilibrium to generate indeterminacy. Hence, while our model does pretty well in accounting for the main features of US business cycles, it avoids several criticisms addressed to these former models, concerning either their dependence upon strongly increasing returns, too high markups, or their implication of countercyclical movements of consumption.
Original languageEnglish
Pages (from-to)311-328
Number of pages18
JournalJournal of Monetary Economics
Volume53
Issue number2
DOIs
Publication statusPublished - Mar 2006
Externally publishedYes

Keywords

  • Animal spirits
  • Business cycles
  • Imperfect competition

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