Leverage Cycle Modeling & Hayekian Macro

A leverage cycle lies at the heart of Friedrich Hayek’s account of the business cycle, as laid out in Hayek’s Monetary Theory and the Trade Cycle.  Heterogeneous agents, asymmetric knowledge, and other limits to markets are bound up in Hayek’s account.  (In fact, Hayek’s macroeconomic work on the division of knowledge in the context of heterogeneous goods is the original wellspring from which the whole of “information economics” began.)

So it’s a welcome development to see macro modelers picking up the Hayekian research agenda.

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