Expectation Formation and Endogenous Fluctuations in Aggregate Demand



within the framework of this paper constitute deviations from a long run trend
and argues that government intervention can be welfare improving. Moreover,
the paper quanti
fies the intangible notions of overheating, overborrowing, and
output gap.

In summary, the paper gives an example of an equilibrium route towards
endogenous
fluctuations in aggregate demand. The fluctuations are the result
of equilibrium actions taken by rational utility maximizing agents.

References

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[2] Aghion, Philippe, Abhijit Banerjee, and Thomas Piketty (1999), "Dualism
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[3] Barlevy, Gady (1998), “Learning Costs and Delayed Adjustment,” North-
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[4] Blanchard, Olivier-Jean (1993), “Consumption and the Recession of 1990-
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[5] Blanchard, Olivier-Jean, and Nobuhiro Kiyotaki (1987), “Monopolistic
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[6] Blanchard, Olivier-Jean (1977), “Essays on Fluctuations,” MIT, Ph.D.,
Thesis 1977.

[7] Brock, William A., and Cars H. Hommes (1997), “A Rational Route to
Randomness,” Econometrica, Vol. 65, No 5, pp. 1059-1095.

[8] Caballero, Ricardo J. and Mohammad Hammour, (1998), ’’Macroeconomics
of Speci
ficity,” JournalofPoliticalEconomy, 106(4), Augusts 1998, pp. 724-
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[9] Chiarella, C. (1988), "The Cobweb Model, its Instability and the Onset of
Chaos," Economic Modelling 5, pp. 377-384.

[10] Chiarella, C, and X. He (2000a), "Asset Pricing and Wealth Dynamics un-
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versity of Technology Sydney. Working Paper.

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