Economists have been coming up with business cycle models since the time of Smith, Ricardo, and Marx. Most modern economists take Samuelson's Multiplier-Accelerator model, and Keynes' model of deficient demand as the starting points for modern policy debates, with the Real Business Cycle model and it's `computable' variant, the Dynamic Stochastic General Equilibrium model (DSGE), the modern tool for policy evaluation. Other business cycle models develop from either behavioural or stock-flow consistent foundations. We'll explore one of each in this lecture.

Specifically we'll look at four models which attempt to generate the cycles we see in modern economic life. Some of these models are more useful than others, some are more used than others. All are cool, for different reasons, hence the title of the lecture. You'll see why as we go through them.

First, we'll look at two multiplier-accelerator models, then at the predator-prey model of Goodwin, at Minsky's financial fragility model, and finally at the daddy of all open economy Dynamic Stochastic General Equilibrium models by Obstfeld and Rogoff. We'll finish off with some numerical examples, and some guides for the problem set, which will get you to read and mess around with some of the literature around these models.

As usual, notes, slides, and hopefully, a recording will be up after the lecture.

Readings

Lance Taylor and Stephen A. O'Connell, A Minsky Crisis, The Quarterly Journal of Economics, Vol. 100, Supplement (1985), pp. 871-885.[jstor]

R. M. Goodwin The Nonlinear Accelerator and the Persistence of Business Cycles, Econometrica, Vol. 19, No. 1 (Jan., 1951), pp. 1-17.[jstor]

EJ Nell, The General Theory of Transformational Growth, Chapter 13. [amazon link]

R. M. Goodwin A Non-Linear Theory of the Cycle, The Review of Economics and Statistics, Vol. 32, No. 4 (Nov., 1950), pp. 316-320 [jstor]

Maurice Obstfeld and Kenneth Rogoff Exchange Rate Dynamics Redux The Journal of Political Economy, Vol. 103, No. 3 (Jun., 1995), pp. 624-660. [jstor]