The Darwinist Business Cycle

Economists have for a long while sought ways to model the mechanisms that generate business cycles but have found it difficult to find models that describe the erratic behavior of business cycles, which can often not be explained by shocks to the economy alone. In this thesis the concept of the business cycle dichotomy is presented, a theory according to which business cycles are generated by two mechanisms; one that describes how real and monetary shocks to the economy give rise to business cycles and one that models how the intrinsic dynamics of the capitalist economic system in itself causes economic fluctuations. The business cycles generated by these two mechanisms would perturb and/or complement each other and often give rise to an erratic pattern. If the concept of the business cycle dichotomy has some merit, it could help us in our understanding of business cycles. Because of the limited scope of a Masters thesis, only the latter mechanism will be modeled and assessed…

Contents

1. INTRODUCTION
1.1. THE SCOPE OF THE ESSAY
2. OVERVIEW OF DIFFERENT BUSINESS CYCLE MODELS
2.1. THE PRE-KEYNESIAN ORTHODOXY
2.2. THE LIQUIDATIONIST ARGUMENT
2.2.1. Schumpeter
2.2.2. Hayek
2.2.3. Robbins
2.3. WHY DID ORTHODOXY DISAPPEAR?
2.4. KEYNESIAN BUSINESS CYCLE MODELS
2.4.1. Keynesian Models Based on Nominal Rigidities
2.4.2. Keynesian Models Based on Coordination Failures
2.5. REAL BUSINESS CYCLE THEORY
3. THE MAIN FEATURES OF THE DARWINIST BUSINESS CYCLE THEORY
3.1. ASSUMPTIONS OF THE DARWINIST BUSINESS CYCLE THEORY
3.1.1. The Consumers
3.1.2. The Producers
3.1.3. The Market
3.2. THE BUSINESS CYCLE GENERATING MECHANISMS OF DBCT
3.3. ANALYSIS
3.3.1. Discussion regarding the Method of Evaluation
3.3.2. Business Cycle Empirical Facts
3.3.3. Comparison between Empirics and Results predicted by DBCT
3.3.4. Other Evaluation Methods and Problematization
4. DIFFERENCES BETWEEN DBCT, MODERN BUSINESS CYCLE THEORIES AND ORTHODOXY
4.1. DIFFERENCES AND SIMILARITIES BETWEEN DBCT AND RBCT
4.1.1. Differences
4.1.2. Similarities
4.2. DIFFERENCES AND SIMILARITIES BETWEEN KEYNESIAN BUSINESS CYCLE MODELS AND DBCT
4.2.1. Differences
4.2.2. Similarities
4.3. DIFFERENCES AND SIMILARITIES BETWEEN DBCT AND ORTHODOXY
4.3.1. Differences
4.3.2. Similarities
4.4. CONCLUSION OF PARAGRAPH FOUR: WHAT NEW IDEAS AND CONCEPTS DOES DBCT BRING?
5. SUMMARY
6. CONCLUSION
7. REFERENCES

Author: Sebastian Cedercrantz

Source: Stockholm School of Economics

The Darwinist Business Cycle