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Indeterminacy in Real Business Cycle Models

  • Kazuo Mino
Chapter
Part of the Advances in Japanese Business and Economics book series (AJBE, volume 13)

Abstract

The baseline real business cycle (RBC) model is a stochastic optimal growth model with flexible labor supply. The typical driving force of business fluctuations is a technological shock hitting the total factor productivity (TFP) of the aggregate economy in each period. In RBC models with equilibrium determinacy, the economy never fluctuates in response to non-fundamental shocks that only affect expatiations of households and firms. As discussed in the previous chapter, the necessary condition for the existence of sunspot-driven business cycles is that the equilibrium path of the economy is indeterminate.

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Copyright information

© Springer Japan KK 2017

Authors and Affiliations

  • Kazuo Mino
    • 1
  1. 1.Kyoto University Institute of Economic ResearchKyotoJapan

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