The Labor Market and Business Cycle Theories (Lecture Notes in Economics and Mathematical Systems)

This book is primarily a critical survey of small-case, theoretical macro models that attempts to analyze the cyclical behavior of modern economies. The authors emphasize the role of the labor market, which is treated very differently in such models. They show how the development of business cycle models owes almost as much to the development of analytic methods as to the economic events that make analysis necessary; this leads to the examination of the changing nature of the mathematical tools that have been used by business cycle theorists. They give examples of how these newer tools can deal with nonlinear models that are capable of generating a richer variety of dynamic outcomes than was possible with linear models. The treatment of these topics does not require a strong background in mathematics and the authors' goal is to call attention to the new methods and provide examples of the results that are possible with them rather than to teach those methods in detail. In addition to the survey material, they describe a regime switching model of their own that is capable of generating cyclical behavior. This model is greatly influenced by its labor market component, in which a nonlinearity is introduced through the device of switching between linear behavioral equations. The model is analyzed analytically and with simulation experiments.