Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 03/2011: Overdeterminacy and endogenous cycles: Trygve Haavelmo’s business cycle model and its implications for monetary policy
André Kallåk Anundsen (), Tord Sigurd Holmsen Krogh (), Ragnar Nymoen () and Jon Vislie ()
Additional contact information
André Kallåk Anundsen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Tord Sigurd Holmsen Krogh: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Ragnar Nymoen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Jon Vislie: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Abstract: This paper presents the business cycle model that Trygve Haavelmo developed as part of his research program in macroeconomic and monetary theory. Driven by a mismatch between the marginal return to capital and the rate of return required by capital owners, this model generates endogenous cycles. The theory leads to a distinct analysis of the scope and limitations of monetary policy. A main message of the model is that care should be taken when conducting 'autonomous' monetary policy and that special emphasis should be put on the soundness of nancial mar- kets. Adopting a strict nominal anchor as the main objective of monetary policy might generate imbalances in the capital market.
Keywords: investments; business cycles; monetary policy
28 pages, March 10, 2011
Full text files
Memo-03-2011.pdf
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