The linear quadratic inventory model as a micro foundation for Keynesian theories of the business cycle

Article Abstract:

The invariable procyclicality of the aggregate inventory indicates that inventories have a destabilizing effect on the economy as forecasted by early Keynesian patterns of the business cycle. Nonetheless, this behavior is deemed to be in disagreement with linear quadratic model, the most evident micro theory of inventories. The linear quadratic model, when assigned in a simple macro framework, can be the reason for the procyclical behavior of inventory investment.

Economics, Research and Development in the Social Sciences and Humanities, Linear programming, Inventories

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The near optimality of adaptive expectations

Article Abstract:

An analysis of rational and adaptive expectations is presented. The analysis assumes a greater information requirement for rational expectations which generates more costs. It is shown that a standard macroeconomic analysis reveals smaller losses for adpative expectations even in the presence of large monetary disturbances. The results imply that adaptive expectations offer a more optimal setting than rational expectations.

Rational expectations (Economics)

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Keynesian real business cycles in a neoclassical framework

Article Abstract:

Keynesian models of cyclical fluctuations are viable alternatives to neoclassical real business cycle models. Keynesian models emulate several properties of actual business cycles and are based on simpler behavioral rules. The effectiveness of such models should therefore not be undermined, even if they do lack micro foundations and reflect suboptimal behavior.

Models, Evaluation, Business cycles

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