Animal spirits and unemployment: a disequilibrium analysis
The past decade has seen a number of advances in modelling disequilibrium dynamics. This paper draws on separate approaches to disequilibrium dynamics to demonstrate a Keynesian result concerning the formal relevance of animal spirits in production economies. Specifically, it is shown that a parameter that can be associated with the animal spirits of firms is crucial to the stability of full employment equilibrium in a production economy. This approach to animal spirits is different to that taken by recent New Keynesian DSGE-type models, but similar in spirit to Old Keynesian approaches, including that of the General Theory. The corollary of the main conclusion is that price flexibility is not a sufficient condition for convergence on full employment equilibrium.
animal spirits unemployment disequilibrium dynamics c63 d50 d51 e24