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A Neokeynesian Model of Price and Quantity Determination in Disequilibrium
Abstract
In the recent years, a number of pathbreaking revisions have occurred in the standard theory of price and quantity determination outside equilibrium. These innovations have been mainly centered around two themes: First the standard neoclassical demand functions responding only to prices have to be replaced by effective demands, taking into account quantity signals as well. Accordingly quantity adjustments occur in the economy, which may disturb the working of the traditional price mechanism. These have been studied brilliantly by Clower [15], [16], Leijon- hufvud [28], [29]1 in their reappraisal of Keynesian economics.
... Filippov introduces a solution concept for differential equations with discontinuous right hand side [2]. Such equations frequently appear in economic modelling [7][4] [1][5] [6]. Despite the importance of these models in economic policy analysis, economic equilibrium analysis, however, rarely goes beyond existence and uniqueness results. ...
... Assumption 1 Consider equation (1). We assume f ∈ C 1 R 2 \(R × {0}), X . ...
This paper establishes the conditions for existence, uniqueness, and exponentially asymptotically stability of periodic orbits of a dynamical system defined by a set of ordinary differential equations with discontinuous right-hand side. Moreover, a formula for the basin of attraction is provided. These results equip economists with a set of tools, which will allow them to generate new analytic results.
... Nous nous appuierons en particulier pour la partie "négociations salariales" sur les travaux antérieurs de Arnsperger et de de la Croix (1990Croix ( , 1993, Cahuc (1991), Cahuc et Zylberberg (1991), Jacobsen et Schultz (1990, 1994, Licandro (1992), et, pour la partie "concurrence imparfaite et équilibre général" sur Bénassy (1977Bénassy ( , 1987Bénassy ( , 1991aBénassy ( , 1992a. Comme dans ces derniers modèles, il sera montré ici que contrairement à une idée trop répandue, la théorie du déséquilibre (dont on trouvera par exemple des exposés pédagogiques dans Bénassy, 1984Bénassy, , 1990Bénassy, , 1993 ne se limite pas à l'hypothèse des prix fixes, mais permet au contraire d'endogénéiser rigoureusement la formation des prix et des salaires dans des contextes économiques très variés. ...
... Nous nous appuierons en particulier pour la partie "négociations salariales" sur les travaux antérieurs de Arnsperger et de de la Croix (1990Croix ( , 1993, Cahuc (1991), Cahuc et Zylberberg (1991), Jacobsen et Schultz (1990, 1994, Licandro (1992), et, pour la partie "concurrence imparfaite et équilibre général" sur Bénassy (1977Bénassy ( , 1987Bénassy ( , 1991aBénassy ( , 1992a. Comme dans ces derniers modèles, il sera montré ici que contrairement à une idée trop répandue, la théorie du déséquilibre (dont on trouvera par exemple des exposés pédagogiques dans Bénassy, 1984Bénassy, , 1990Bénassy, , 1993 ne se limite pas à l'hypothèse des prix fixes, mais permet au contraire d'endogénéiser rigoureusement la formation des prix et des salaires dans des contextes économiques très variés. Une caractéristique importante du modèle qui sera présenté ici est qu'il permet d'obtenir une solution explicite dans un cadre non symétrique, ce qui fera mieux apparaître le rôle des paramètres spécifiques à chaque industrie, rôle qu'il est bien sûr beaucoup plus difficile de mettre en évidence dans un modèle symétrique. ...
El rol de la movilidad del trabajo en un modelo macroeconómico de subempleo con competencia imperfecta, negociaciones salariales y anticipaciones racionales,
por Jean-Pascal Bénassy.
En este artículo se estudia el roi de la movilidad del trabajo. Se calculan soluciones explicitas en equilibrio general, aún en el caso en que todas las empresas en la economía son diferentes, lo cual permite evaluar el impacto de los parámetros propios de cada firma sobre las variables endógenas. La influencia en los salarios de la productividad y del poder de négociación en cada empresa es radicalmente diferente según si hay inmovilidad o movilidad imperfecta de los trabajadores. Un poder de negociación demasiado elevado de todos los sindicatos puede ser nocivo para el conjunto de asalariados.
... In this section I first present the equilibrium concept underlying this type of model by adapting the works of Benassy (1975a) and of Drbze (1975) (Section 4.1). I then study the application of this method to the study of the microeconomic foundations of macroeconomic theory by adapting a model analysed by Benassy (1978) (Section 4.2). ...
... This example has been extensively analysed in the literature (Barro and Grossman, Benassy, Malinvaud, and Younrs). The specification which I shall use is very close to that of Benassy (1978). ...
Traditional general equilibrium theory has, for a long time, studied an economic model that is essentially static, where the agent's expectations are self-fulfilling and the equilibrium is achieved solely by the price system. The chapter presents the conceptual framework underlying temporary equilibrium models. This chapter discusses the central role played by an agent's expectations in his or her decision-making process. This model is the microeconomic foundation of the whole theory. A few models using the temporary competitive equilibrium method are also studied in the chapter. It is postulated that prices move fast enough in each period to match supply and demand. The first problem studied is the issue of the existence of an equilibrium in asset markets that is very important in any theory of financial markets. In the framework of a simple model, a necessary and sufficient condition for the existence of a competitive equilibrium in asset markets is some partial agreement among economic agents concerning expected future spot prices of these assets. The chapter studies the temporary equilibrium with the quantity rationing method and to the possible contributions of this approach to the theory of employment and inflation. The basic axiom of this approach is that in the short run, quantities adjust infinitely faster than prices. One is thus led to study a model where prices are temporarily fixed in each period and equilibrium is achieved by quantity rationing. The chapter also presents an evaluation of the equilibrium concepts used in this area.
... In this paper, we consider an economic system defined by a planar ordinary differential equation with discontinuous right-hand side. Similar dynamical systems are considered in various economic models [2] [3] [4] [5] [6]. For such models, there exists a well developed existence and uniqueness theory [7]. ...
... In complex economic applications of dynamical systems with discontinuous right-hand side the calculation of explicit solutions may be difficult [5][2] [1][3] [4]. We want to establish existence and exponentially asymtotically stability of a nonsmoth periodic orbit without its explicit calcuation. ...
This paper considers a dynamical system with discontinuous right-hand side introduced in Stiefenhofer and Giesl [7]. The system is defined by a set of ordinary differential equations which are discontinuous at some points. Such equations frequently appear in economic modelling, and hence are important in economic policy analysis. The paper shows the contraction property of the distance function between two adjacent trajectories and that the ωlimit set of the (non)smooth periodic orbit for two adjacent initial conditions is the same.
... In complex economic applications of dynamical systems with discontinuous right-hand side the calculation of explicit solutions might be difficult if not impossible [5][2] [1][3] [4]. This hinders the development of analytic solutions of economic models and economic policy analysis. ...
This paper considers an application of a local theory of exponentially asymptoti-cally stability of nonsmooth periodic orbits derived by a planar dynamical system of nonautonomous ordinary differential equations with discontinuous right-hand side. Such dynamical systems are encountered in ecoomic modelig. In this paper, we re-visit an example considered in a companion paper of this journal and show that the explicit solution of the dynamical system is not required in showing exponentially asymptotically stability, and in the clacualtion fo the basin of attracation.
... We consider an explicit calculation of a periodic orbit of a non-smooth dynamical system described by equation (1). The calculation of a periodic orbit is performed by transforming the original problem into a problem in polar coordinates. ...
This paper considers a system of a ordinary differential equations with discontin-uous right-hand side. Such systems appear in economics in the context of economic growth. The paper first shows, at the case of a planar system, the derivation of a nonsmooth periodic orbit. It is then shown, by defining a Poincaré map, that this solution is globally stable. The limitations of this global stability theory are investigted and suggestions towards a local theory of stability are introduced.
... If a non-optimal equilibrium exists, then it cannot also be a Pareto optimal. This "subjective" perception of demand may pass through the revised market equilibrium, even if this is arbitrary beyond the initial market equilibrium (Benassy, 1975;Negishi, 1979). A feature of this framework is that it nests in a variety of alternative specifications for price setting, including the menu cost model (Akerlof & Yellen, 1985a, 1985bMankiw, 1985;Sheshinski & Weiss, 1977) the Calvo model (Calvo, 1983;King & Wolman, 1996) and Boiteux-Ramsey price equilibrium (Baumol, Panzar, & Willig, 1982;Boiteux, 1971;Braeutigam, 1979Braeutigam, , 1984Lipsey & Lancaster, 1956;Ramsey, 1927;Sadmo, 1975). ...
The paper explores the concept of profit sharing as a prospective source of labor income. The paper suggests a paradigm shift: a synthesis of differing perspectives in wage formation to redefine the concept of labor income. The proposed labor income arrangements attempt to conceptualize the productive capacity of human capital. The rearrangement of labor income disassociates the basic wage from the wage premium. Furthermore, it keeps the labor-cost-to-total-cost ratio constant: the basic wage is categorized as a fixed cost, whereas the wage premium is categorized as a variable cost. Finally, some comparative statics results are derived.
... At …rst sight it might appear that a measure for this could easily be obtained from a comparison of the desired trades in presence of rationing constraints, called e¤ective demands, with actual trades. In fact, Bénassy [1976Bénassy [ , 1978 and Laroque [1981], among others, have studied models in which the value of the aggregate excess demand, arising from Benassy's concept of e¤ective demand, is assumed as such a measure. 3 But, as has been pointed out by Grandmont [1977], Green [1980] production function and of the demand function, by imperfect and asymmetric information and by risk aversion of order one (Weinrich [1997]). ...
In this paper we present a dynamic macroeconomic model with stochas-tic quantity rationing. Trades take place in each period even when prices are not at their Walrasian level. Moving from one period to the next, prices and wages are adjusted according to the intensity of rationing, a reliable measure of which is obtained by means of stochastic rationing. A com-plete characterization of the typology of equilibria is given and dynamic adjustment equations are derived. From this it is evident that structural parameters such as the adjustment speed of prices, as well as government policy parameters, are decisive for the type of dynamics that emerges. In particular there is a tendency for nominal wage stickiness to stabilise the economy whereas high wage exibility favours cyclical and irregular be-haviour.
... This implication is not in line with the Bellman principle for rational intertemporal planning. al Other studies in price dynamics are, e.g., provided by Barro/ Grossman (1978), Benassy (1978) and B6hm (1980). A discussion of the dynamics arising from an imbalanced government budget can be found in B/Shm (1978Shm ( a, 1978Shm ( b, 1980 ). a) Keynesian Unemployment, Administered Underemployment , and Walrasian Equilibrium The model developed above is represented graphically inFig. 5. ...
... Une première réponse à cette critique est déjà partiellement apportée par Bénassy (1976aBénassy ( , 1976bBénassy ( et 1977 et Grandmont et Laroque (1976), qui synthétisent deux approches dans le cadre de la théorie de l'équilibre général : la concurrence monopolistique et les équilibres à prix fixes. Il est en effet clair que modéliser les comportements de prix doit passer par une modélisation de l'économie en concurrence imparfaite. ...
[fre] Les ajustements des prix et des salaires enjeux théoriques et mesure statistique . Les rigidités des prix et des salaires nominaux sont au coeur du débat théorique macro-économique. Selon les économistes keynésiens, elles permettent de rendre compte des effets des chocs de demande - par exemple une augmentation des dépenses publiques - sur la production. En revanche, pour les économistes néoclassiques ces rigidités n'ont pas de fondements micro-économiques. Pour répondre à cette critique, la nouvelle macro-économie keynésienne a développé l'idée que de faibles coûts d'ajustement des prix (small menu costs) peuvent être à l'origine de fluctuations importantes de l'activité. . En France, l'évolution contrastée des prix et de la production ainsi que la volatilité importante des quantités constituent des indices de la présence de rigidités nominales. Les corrélations entre les prix et les quantités sont cohérentes avec cette hypothèse : la corrélation instantanée est faible et les corrélations entre le produit présent et les prix passés sont négatives, ce qui accrédite l'idée que la rigidité est temporaire. Ces résultats soulignent l'importance de la demande agrégée dans le cycle économique. [eng] Price and Wage Adjustments: Theoretical Stakes and Statistical Measurement . Wage and price rigidities are at the heart of the theoretical macroeconomic debate. Keynesian economists feel that they enable them to take into account the effects of demand shocks on production, such as an increase in government spending. Neoclassical economists, however, believe that these rigidities have no microeconomic bases. In response to this criticism, new Keynesian macroeconomics have developed the idea that small menu costs could be at the root of large business fluctuations. . In France, a comparison of the development of prices and production along with the high volatility of quantities form indices of the presence of rigidities. The correlations between prices and quantities are consistent with this hypothesis: the immediate correlation is low and the correlations between the present product and past prices are negative, which substantiates the idea that the rigidity is temporary. These results highlight the importance of aggregate demand in the business cycle. [ger] Die Preis- und Lohnanpassungen: theoretisches Anliegen und statistische Messung . Die Starrheiten der Preise und der Nominallôhne nehmen in den theoretischen Diskussionen der Makroôkonomie einen zentralen Platz ein. Den keynesianischen Ôkon- omen zufolge spiegeln sie die Effekte der Nachfrage- schocks, beispielsweise einer Erhôhung der ôffentlichen Ausgaben, auf die Produktion wider. Fur die neoklassi- schen Ôkonomen haben dièse Starrheiten dagegen keine mikroôkonomischen Grundlagen. Als Antwort auf dièse Kritik haben die Vertreter der neukeynesianischen Makroôkonomie die Hypothèse aufgestellt, der zufolge die geringen Kosten einer Preisanpassung (small menu costs) betrâchtliche gesamtwirtschaftliche Schwankun- gen bewirken kônnen. . Die gegensâtzliche Entwicklung der Preise und der Produktion sowie die erhebliche Mengenvolatilitât stellen in Frankreich Indizien fur das Vorhandensein nominaler Starrheiten dar. Zu dieser Hypothèse sind die Preis-/Men- genkorrelationen kohârent: denn die Momentkorrelation ist gering, und die Korrelationen zwischen dem vorhan- denen Produkt und den erhobenen Preisen sind negativ, was die Annahme einer zeitweisen Starrheit unterstùtzt. Dièse Ergebnisse verdeutlichen die Bedeutung deraggre- gierten Nachfrage im Konjunkturzyklus. [spa] Los ajustes de los precios y de los salarios : expectativas teôricas y mediciôn estadfstica . Las rigideces de los precios y de los salarios nominales estân en el centra del debate teôrico macroeconômico. Segûn los economistas keynesianos, estas permiten dar cuenta de las consecuencias de los choques de la demanda - por ejemplo el aumento masivo de los gastos pûblicos - sobre la producciôn. Al contrario, para los economistas neoclâsicos, esas rigideces no tienen fundamento microeconômico. Para contestar a esta critica la nueva macroeconomîa keynesiana ha desarrollado la idea segûn la cual unos bajos costes de ajuste de precios {small menu costs) pueden originar fluctuaciones importantes de la actividad. . En Francia, la evoluciôn contrastada de los precios y de la producciôn, asf como la volatilidad importante de las cantidades constituyen indicios de la presencia de rigideces nominales. Las correlaciones entre los precios y las cantidades confirman esta hipôtesis : la correlaciôn inmediata es intima y las correlaciones entre el producto présente y los precios pasados son negativas, lo cual consagra la idea de que la rigidez es temporaria. Estos resultados recalcan la importancia de la demanda agregada en el ciclo econômico.
The recent development of macroeconomic models with fixed prices and adjustment of quantities has shown the importance of considering the type of unemployment in the economy, since this determines the effects of economic policy decisions. The fundamental concept of this theory, namely fix-price equilibrium with quantity rationing, presents similarities with Walrasian equilibrium. Its interpretation is based on tatonnements on quantities instead of tatonnements on prices.
Le début des années septante a vu aboutir l'étude rigoureuse et complète de la théorie de l'équilibre général concurrentiel, théorie qui remonte à Walras et à laquelle sont associés les noms de Arrow et Debreu. L'axiome clef de cette théorie est que les prix s'ajustent librement de manière à assurer l'égalité entre l'offre et la demande sur tous les marchés. Dans son interprétation la plus large, elle suppose que les agents économiques ont accès à un système complet de marchés à terme, ce qui conduit à un modèle essentiellement atemporel : tous les contrats sont conclus au début des temps et il n'y a pas d'incitant à réouvrir les marchés par la suite (1). Deux révolutions sont récemment intervenues en théorie économique, dont les effets combinés ont permis de résoudre des problèmes qu'il n'était pas possible d'aborder dans le cadre des approches précédentes.
The purpose of the study is to develop a theoretical model to ascertain if the IT investment in the banking sector is capable of generating a new equilibrium with increased efficiency. The empirical strategy is to seek an indirect test for Jordanian banking sector by looking at the time profile of banking profits as a temporal function of IT investment. The study enquires if the banking sector, as an iterative process of credit allocation and information acquisition through IT investment, lead to a stable equilibrium? Does IT investment ensure stable market shares for Jordanian banks in the long run? The study finds that investment in IT has led the banking system in Jordan away from an efficient equilibrium. We also find that the banks in Jordan directly interact with each other, although they may have collusive arrangements with some of their rivals, this means the banking market is not fragmented.
The general competitive theory of markets (Walras, Arrow-Debreu) presupposes that no agent has market power and that prices and wages instantaneously adjust to equilibrate price-taking supply and demand. Fixprice models follow its emphasis on the interactions across markets, but under the more realistic assumption that markets frequently operate under excess demand or supply, with prices often exceeding marginal costs because prices and wages adjust slowly, or because of market power. The original fixprice models, which adopted the short-run method with static expectations, are the precursors of neo-Keynesian dynamic macroeconomics based on market power and the stickiness of wages or prices.
The very use of the term ‘equality’ is often clouded by imprecise and inconsistent meanings. For example, ‘equality’ is used to mean equality before the law (equality of treatment by authorities), equality of opportunity (equality of chances in the economic system), and equality of result (equal distribution of goods), among other things. These different meanings often conflict, and are almost never wholly consistent. See Hayek (1960, p. 85; 1976, pp. 62–4) for a discussion of equality before the law and equality of result, and Rawls (1971) for a discussion of equality of opportunity within a theory of distributive justice. Elsewhere I have discussed the difference between equality of opportunity and equality of result in education (Coleman, 1975). See also Pole (1978) for a detailed examination of the changing conceptions of equality in American history.
Two main ideas will be developed here. First, that fixprice analysis is not a negation of the competitive equilibrium model, but rather a more general framework which includes perfect competition as a special case. It is a study of markets in a wider sense. It concerns “prices” more than “fixity”: it abstracts from specific features of market behavior and analyzes general properties of allocation mechanisms where market prices play a fundamental role. Second, that fixprice analysis has two main interpretations (logically distinct but related in a subtle way, see Arrow [1959]): the monopolistic competition interpretation, which views economic agents as having differing degrees of monopoly (or monopsony) power (competitive equilibrium being the special case where monopoly is nil) and the competition in the short run interpretation, which views the economy as perfectly competitive but assumes that it takes time for prices and quantities to adjust to their competitive equilibrium levels (competitive equilibrium being the only relevant situation in the special case where adjustment is very fast).
A convenient way to define ‘disequilibrium’ is of course as the contrary of ‘equilibrium’. Unfortunately this leaves us with no unique definition as the word equilibrium itself has been used in the economic literature with at least two principal meanings. The first one refers to market equilibrium, i.e. the equality of supply and demand on markets. This is the meaning we shall retain in this entry, and therefore the disequilibrium analysis we shall be concerned with here is the study of nonclearing markets, also called non-Walrasian analysis by reference to the most elaborate model of market clearing, the Walrasian model.
In this article we study models with non-clearing markets in a full general equilibrium framework. The theories we describe synthesize three major schools of thought, Walrasian, Keynesian and imperfect competition. This synthesis is notably achieved by introducing quantity signals in addition to price signals into the traditional general equilibrium model. This considerably enlarges the scope of traditional general equilibrium, allowing us not only to construct equilibria with various price rigidities but also to endogenize prices in a decentralized imperfect competition framework.
This article studies a new class of models which synthesize the two traditions of general equilibrium with non-clearing markets and imperfect competition on the one hand, and dynamic stochastic general equilibrium (DSGE) models on the other hand. This line of models has become a central paradigm of modern macroeconomics for at least three reasons: (a) it displays solid microeconomic foundations, (b) it is a highly synthetic theory, which combines in a unified framework general equilibrium, non-clearing markets, imperfect competition, growth theory and rational expectations, and (c) it is also an empirical success, leading to substantial progress towards matching real world statistics.
Modern fixprice theory (Benassy 1975, 1976, 1982; Drèze 1965; Younès 1975) studies trade and production at non-Walrasian prices in general environments with possibly many agents and goods. The name and the basic logic originate in Hicks (1965) where a multiperiod economy is contemplated. Hicks defines two analytical methods: the Flexprice Method, which assumes that prices adjust within each period so that current transactions equal both demand and supply (such very short-run equilibration being, in his words, ‘hard to swallow’) and the Fixprice Method, where prices are given at the beginning of each period and transactions may differ from supply or demand. Both the Flexprice and the Fixprice methods are ‘pure’ or extreme ones. Hicks’s own preference is ‘for something which lies between’, knowing that ‘anything that does so must partake to some extent the difficulties of the two’. The general models discussed here follow Hicks’s Fixprice Method. They are rather abstract, and they may alternatively be applied to the short period of Capital and Growth or to an atemporal economy.
Equilibria with rationing, also called non-Walrasian equilibria, are a wide class of equilibrium concepts which generalize the traditional notion of Walrasian equilibrium by allowing markets not to clear (in the traditional sense) and therefore quantity rationing to be experienced. Their scope is best described by examining first Walrasian equilibrium as a reference.
A command economy is one in which the coordination of economic activity, essential to the viability and functioning of a complex social economy, is undertaken through administrative means — commands, directives, targets and regulations — rather than by a market mechanism. A complex social economy is one involving multiple significant interdependencies among economic agents, including significant division of labour and exchange among production units, rendering the viability of any unit dependent on proper coordination with, and functioning of, many others.
The fundamental unit of activity of the brain is the neuron. It ingests nutrients, receives chemical signals from other neurons, and fires (produces electro-chemical action potentials), which results in sending chemical signals (that is, neurotransmitters) to other neurons. Human brains are estimated to have as many as 100 billion neurons. A first task of neuroeconomics is to accumulate information about the behaviour of collections of neurons and how they interact to produce economic choices.
It is therefore misleading to reason on aggregative equilibrium as if it displayed the factors which initiate change and as if disturbance in the economic system as a whole could arise only from those aggregates.
Der Versuch der Neuformulierung einer leistungsfähigen kurz- und mittelfristigen Makroöknomik kann grundsätzlich nur abzielen, eine Theorie zu entwickeln, die insofern allgemein ist. als sie. „Gleichgewichts“ - und „Rationierungs“ - einschlieβlich Konzeptionen monopolistischen Gleichgewichts eine datenspezifisch komplementäre Rolle zuweist
A convenient way to define ‘disequilibrium’ is of course as the contrary of ‘equilibrium’. Unfortunately this leaves us with no unique definition as the word equilibrium itself has been used in the economic literature with at least two principal meanings. The first one refers to market equilibrium, i.e. the equality of supply and demand on markets. This is the meaning we shall retain in this entry, and therefore the disequilibrium analysis we shall be concerned with here is the study of nonclearing markets, also called non-Walrasian analysis by reference to the most elaborate model of market clearing, the Walrasian model.
DEFINITION AND SCOPE. Equilibria with rationing, also called non-Walrasian equilibria, are a wide class of equilibrium concepts which generalize the traditional notion of Walrasian equilibrium by allowing markets not to clear (in the traditional sense) and therefore quantity rationing to be experienced. Their scope is best described by examining first Walrasian equilibrium as a reference.
Modern fixprice theory (Benassy, 1975, 1976, 1982; Drèze, 1975; Younès, 1975) studies trade and production at non-Walrasian prices in general environments with possibly many agents and goods. The name and the basic logic originate in Hicks (1965) where a multiperiod economy is contemplated. Hicks defines two analytical methods: the Flexprice Method, which assumes that prices adjust within each period so that current transactions equal both demand and supply (such very short-run equilibration being, in his words, ‘hard to swallow’) and the Fixprice Method, where prices are given at the beginning of each period and transactions may differ from supply or demand. Both the Flexprice and the Fixprice methods are ‘pure’ or extreme ones. Hicks’s own preference is ‘for something which lies between’, knowing that ‘anything that does so must partake to some extent the difficulties of the two’. The general models discussed here follow Hicks’s Fixprice Method. They are rather abstract, and they may alternatively be applied to the short period of Capital and Growth or to an atemporal economy.
In recent years some theories have developed that formalize in various ways the basic Keynesian idea that prices may not clear markets at all times, and thus that economic adjustments take place by quantities as much as by prices, a point that had been emphasized notably by Clower (1965) and Leijonhufvud (1968). These theories have been developed both in a microeconomic and in a macroeconomic framework.1
The theory of non-Walrasian equilibria provides a method for analysing the problems of allocation in an economy with imperfectly functioning markets. This method is new, and represents a direct line of development which in our view can be traced from Clower’s original (1965) article to the construction of general non-Walrasian equilibrium models. It is also general, and thus capable of being applied to numerous areas in macroeconomic theory.
Das wissenschaftliche Interesse von KEYNES galt vor allem kurzfristigen ökonomischen Problemen und Fragestellungen. Für seine Abneigung, sich auf längerfristige Spekulationen einzulassen, wird immer wieder sein Aphorismus zitiert, wonach wir längerfristig alle tot seien. Gleichwohl findet sich z.B. in der General Theory
1 eine Reihe von Äußerungen über Modifikationen und Implikationen seiner Analyseergebnisse für eine längerfristige Perspektive. Sie betreffen zum einen die Vergrößerung des wirtschaftspolitischen Spielraums bzw. die auf lange Sicht bessere Vereinbarkeit wirtschaftspolitischer Ziele (s. ASIMAKOPULOS 1991, S. 136), zum anderen die langfristige Problematik einer Stimulierung der Investitionstätigkeit:
In the past decades the set of economists has been divided in two disjunct subsets: the “micros” and the “macros” (Leijonhufvud, 1979). The first productive attempts to overcome this dichotomy in economic theory are due to Clower (1965), Leijonhufvud (1968), Patinkin (1965) and Barro/ Grossmann (1971). “Microfoundation of macroeconomics” or “new macroeconomics” or “new microeconomics” are well-known slogans associated with this new way of economic thinking, which has become most popular by Edmond Malinvaud’s famous reformulation of Keynesian unemployment theory (Malinvaud, 1978). Intention of this paper is to follow these lines and to show the very close connections between the theory of individual behaviour under uncertainty and the theory of a general equilibrium with rationing. To start with, rationing of economic transaction on markets for labour and goods in a fixed price situation is described, yielding “temporary equilibria” in the sense, that self-reproducing quantity signals occur. In a second section the predominant role of expectations of agents concerning future prices and rationing situations is emphasized. Some examples will show that expectations tend to be self-fulfilling. Then the question is to be answered why fixed prices may occur for a given period of time providing non-Walrasian adjustment processes and equilibria. One possible answer is given by analyzing monopolistic price and output decisions under uncertainty. This analysis, furthermore, gives some hints for the actual discussion on the type of unemployment in the economics of the Western hemisphere. Finally, the credit market will be introduced and it will be shown that uncertainty may induce rationing of credit demand, as well.
Properties of a price dependent rationing scheme are formula ted which can handle constrained flexible prices as well as fDred prices. This scheme is applied to prove the existence of an equil! brium which generalizes Benassy' s concept of K-equilibrium. RESUMO Sao formu!adas as propriedades de urn esquema de racionamento dependente do preQo, que pade tratar tanto de precos flexiveis res tringidos quanta precos fixQs. Este esquema e aplicado para provar a existencia de urn equilibria que generaliza 0 conceito de K-equi librio, devido a Benassy.
l volume, che riproduce sostanzialmente la dissertazione di Dottorato dell'Autrice, ha lo scopo di valutare vantaggi e svantaggi di alcuni tra gli approcci piu' recenti alla spiegazione delle fluttuazioni macroeconomiche con quelli dell'approccio
comportamentista, cioè dell'approccio implicito nell'opera di autori come Frisch,
Tinbergen, Goodwin, Kaldor, Hicks e Kalecki. A questo scopo viene analizzato
il ruolo svolto nei vari modelli dalla specificazione di ipotesi ad hoc. In numerosi contributi, recentemente apportati alla teoria del ciclo economico ed appartenenti sia all'approccio
di equilibrio che a quello di disequilibrio a "prezzi fissi", l'approccio comportamentista viene frettolosamente rigettato a causa della sua dipendenza da ipotesi ad hoc, cioè da "ipotesi senza fondazioni microeconomiche nel senso tradizionale". Tale punto
di vista viene analizzato e criticato nella prima parte del libro. L'argomentazione prende le mosse da un'analisi dei due approcci più recenti con lo scopo di mostrare come anche in essi un ruolo cruciale venga svolto dalla specificazione di ipotesi ad hoc. Vengono poi analizzati alcuni modelli appartenenti all'approccio comportamentista. L'argomentazione in questo caso prende spunto da recenti contributi di Benassy in cui tale approccio viene criticato per la scelta di nonlinearità ad hoc. Si suggerisce infine che l'assenza o non di ipotesi ad hoc (in se stessa) non è un criterio che permetta di stabilire la superiorità di un approccio sugli altri e che per sbrogliare questo problema occorre fare un ulteriore passo in avanti e discutere il ruolo svolto da ipotesi ad hoc non in astratto - come si fa generalmente - ma facnedo riferimento a quegli specifici problemi che i modelli atti a descrivere la dinamica dell'economia devono risolvere.
Four incentives for the vertical integration of firms have frequently been mentioned in the literature. Mergers may result from market power in either the primary-resource, intermediate-product or final- product markets.1 Technological advantages accruing to combination can arise through increasing returns,2 information advantages3 or decreased transactions costs, when firms place themselves in a cooperative rather than an adversarial relationship.4 Tax avoidance provides a third reason for integration.5 More generally, integration opens up a wider range of strategies in the face of regulation and more flexibility in implementing them. Finally, imperfections in the market for the intermediate product may lead firms to combine in order to bypass these problems by transferring goods internally.6 This chapter addresses the last of these issues. In particular, it studies the problem of price inflexibility in an intermediate-product market which is beset by stochastic demands, and the temporary shortages and gluts of this product that result. We hypothesise that firms choose to integrate if the expected profit from doing so exceeds that of the separate divisions acting independently. Both descriptive and normative conclusions regarding such an industry are drawn on the basis of the model presented.
One of Hugo’s most lasting lessons for me was the crucial importance when doing theory of getting the foundations straight and strong. The paper that follows, “An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages” (Roberts 1987b), is an attempt to be careful about foundations in the context of a model of a whole economy. It grew out of work that Hugo and I had done a decade earlier.KeywordsFull EmploymentMarket ClearingImperfect CompetitionWalrasian EquilibriumOutput OrderThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
The aim of this paper, which is part of a broader research project, is to analyse the fluctuations of output in a framework of imperfect competition based on the stylised facts. We conclude that these movements can be originated by supply or demand shocks, or simply by the adjustment of the economy when goods or labor markets are not balanced because of price and wages rigidities. On the other hand, it justifies the Keynesian argument related to government interference in cases where the economy cannot overcome a recessive stage on its own.
RÉSUMÉ
L’article présente une maquette dynamique, chiffrée sur données trimestrielles de l’économie française, décrivant une situation de concurrence monopolistique à la fois sur le marché des biens et sur celui du travail. Sur ce dernier existe un effet de persistance conforme à la théorie « insider-outsider ». Le modèle est bouclé par la prise en compte de la consommation des ménages (revenu permanent) ainsi que des dépenses publiques et des échanges extérieurs. Après avoir étudié les propriétés de long terme de la maquette et vérifié les conditions d’existence et d’unicité de trajectoires d’anticipations rationnelles au voisinage de la solution stationnaire, des multiplicateurs dynamiques correspondant à des chocs transitoires non anticipés sont calculés et interprétés.
RÉSUMÉ
Le but de cet article est de montrer comment l’on peut intégrer dans un même modèle les développements récents sur la formation des prix et des salaires d’une part, et les apports de la théorie du déséquilibre d’autre part. Le modèle proposé est essentiellement un modèle à trois biens (biens produits, travail et monnaie) et deux marchés (biens et travail), auquel on ajoutera l’énergie afin d’illustrer les conséquences d’un choc pétrolier. Les prix sont fixés par des entreprises en concurrence monopolistique, les salaires par le syndicat des travailleurs. On détermine dans ce schéma les valeurs d’équilibre du taux de chômage, du taux d’utilisation des capacités et de la proportion d’entreprises contraintes par les débouchés. On analyse successivement les équilibres à court terme (capacité de production, prix et salaires fixes), moyen terme (capacité de production fixe; prix et salaires endogènes) et long terme (prix, salaires et capacité de production endogènes). On verra en particulier qu’une proportion élevée d’entreprises contraintes par les débouchés ne signifie nullement qu’une politique de relance puisse résorber le chômage.
The IS-LM framework has been the standard model used for understanding and teaching Keynesian macroeconomics since 1960. Indeed,
even a monetarist such as Friedman could subscribe to a modified version of the IS-LM model (1970); Sargent and Wallace (1975)
formulated the first New Classical neutrality proposition with an IS-LM model of aggregate demand. The main decisive break
from this tradition was Barro’s textbook, Macroeconomics, whose first edition was 1984. This relegated the IS-LM analysis to an afterthought at the end of the book; the bulk of the
textbook was devoted to the market clearing intertemporal equilibrium approach to macroeconomics, which had its origins in
the work of Lucas and Rapping (1969). In this paper we trace a brief history of the IS-LM framework, and how it has been reinterpreted
over the last few decades by economists of an essentially “Keynesian” viewpoint.
This paper investigates whether ‘nonrational’ expectations can lead to outcomes which, other things being equal, Pareto dominate rational expectations outcomes. In order to carry out this investigation we construct an intertemporal micro-based macroeconomic model with the two following strong points: (a) It accommodates both rational and non-rational expectations, (b) Both prices and quantities are determined by optimizing agents. In particular prices are determined by explicit price setters using objective demand curves. In this model the first theorem of welfare holds, so that the Walrasian equilibrium with rational expectations cannot be Pareto dominated. This conclusion is extremely fragile, however, and we show that as soon as some degree of imperfect competition is present, rational expectations are suboptimal, in the sense that they are dominated by ‘irrational expectations’.
The paper presents a generic description of the long-term evolution of a rationed equilibrium economy with quantities adjusting quickly to their equilibrium values, while prices react slowly to excess demands.Assuming the differential equation describing the fast adjustment in quantities to depend smoothly on the prices, we show that equilibria exhibit ‘Exchange of Stability’, whenever the prices cross the boundary between two equilibrium regions in the parameter plane.A generic description is obtained by introducing new ‘dual’ equilibria in the quantity space and increasing the dimension of the parameter space by introducing parameters, which are usually ‘hidden’ in the standard description.
This note advocates a Filippov solution for a system of differential equations with discontinuous right-hand sides. The Filippov solution is applied to a dynamic disequilibrium macroeconomic model, showing a unique solution is determined despite discontinuities at the boundaries of different regimes.
Equilibria with Keynesian unemployment are studied in the framework of a simple macroeconomic model, assuming that they result from a non-tâtonnement at fixed prices and wages.
This paper surveys the link between imperfect competition and the effects of fiscal policy on output, employment and welfare. We examine static and dynamic models, with and without entry under a variety of assumptions using a common analytical framework. We find that in general there is a robust relationship between the fiscal multiplier and welfare, the tantalizing possibility of Pareto improving fiscal policy is much more elusive. In general, the mechanisms are supply side, and so welfare improving policy, whilst possible, is not a general result.
This article studies a new class of models which synthesize the two traditions of general equilibrium with nonclearing markets and imperfect competition on the one hand, and dynamic stochastic general equilibrium (DSGE) models on the other hand. This line of models has become a central paradigm of modern macroeconomics for at least three reasons: (a) it displays solid microeconomic foundations, (b) it is a highly synthetic theory, which combines in a unified framework general equilibrium, nonclearing markets, imperfect competition, growth theory and rational expectations, (c) it is also an empirical success, leading to substantial progress towards matching real world statistics.
In this article we study models with non clearing markets in a full general equilibrium framework. The theories we describe synthesize three major schools of thought: Walrasian, Keynesian and imperfect competition. This synthesis is notably achieved by introducing quantity signals in addition to price signals into the traditional general equilibrium model. This considerably enlarges the scope of traditional general equilibrium, allowing us not only to construct equilibria with various price rigidities, but also to endogenize prices in a decentralized imperfect competition framework.
This is a textbook on macroeconomic theory that attempts to rework the theory of macroeconomic relations through a re-examination of their microeconomic foundations. In the tradition of Keynes's General Theory of Employment, Interest and Money (published in 1936), and Patinkin's Money, Interest, and Prices, published in 1956 and revised in 1965, this book represents a third generation of macroeconomic theory. This book presents a comprehensive choice-theoretic analysis of the determination of the level of employment and the rate of inflation. A central feature of the book is the recasting of macroeconomic analysis in terms of a theory of exchange under non-market-clearing conditions. In addition, the analysis incorporates other aspects of the current reformulation of macroeconomic theory, including the relation between inflationary expectations, rates of return, and unemployment, the dynamics of aggregate demand, and the significance of incomplete information regarding the spatial distribution of wages and prices.
This book was originally published by Macmillan in 1936. It was voted the top Academic Book that Shaped Modern Britain by Academic Book Week (UK) in 2017, and in 2011 was placed on Time Magazine's top 100 non-fiction books written in English since 1923. Reissued with a fresh Introduction by the Nobel-prize winner Paul Krugman and a new Afterword by Keynes’ biographer Robert Skidelsky, this important work is made available to a new generation.
The General Theory of Employment, Interest and Money transformed economics and changed the face of modern macroeconomics. Keynes’ argument is based on the idea that the level of employment is not determined by the price of labour, but by the spending of money. It gave way to an entirely new approach where employment, inflation and the market economy are concerned.
Highly provocative at its time of publication, this book and Keynes’ theories continue to remain the subject of much support and praise, criticism and debate. Economists at any stage in their career will enjoy revisiting this treatise and observing the relevance of Keynes’ work in today’s contemporary climate.
A model of an exchange economy is presented where money is the only asset. It is shown that, under some assumptions, a short-run equilibrium exists if the traders’ price expectations do not depend ‘too much’ on current prices.
I. Introduction, 537. — II. Building blocks, 539. — III. The working of the model, 545. — IV. Displacement of short-run equilibrium,
554. — V. Effective demand and the distribution of income, 557. — VI. Next steps, 559.
Although it is possible to draw various purely technical distinctions between modern and pre-Keynesian economics, it is mainly
with respect to matters of intellectual orientation that the two are strikingly different. Many and diverse reasons have been
advanced to explain why this should be so, most of them plausible, all of them fairly elaborate. The purpose of this note
is to add an element of unity and simplicity to these explanations by suggesting a straight-forward dynamical interpretation
of the foundations of Keynesian and classical thought.
1. From the point of view of the traditional Walrasian general equilibrium theory, one of the most puzzling things is the existence of an under-employment equilibrium at which there is excess supply of labor with a positive wage rate, since the usual notion of the term equilibrium is a set of prices at which there is no tendency for change. There have been suggested two kinds of reconciliation of Walrasian general equilibrium theory with the existence of the involuntary unemployment. One is to deny the existence of an underemployment equilibrium by regarding involuntary unemployment as an adjustment phenomenon. This view has been shared by many economists including Patinkin, Clower and Leijonhufvud1. We shall consider it in Section 2. The other is to reconcile general equilibrium theory with unemployment by assuming wage rigidity as is usually done in the orthodox Keynesian economics. The newest and most rigorous version of this view is given by Glustoff [7]. We shall criticallv consider it in Section 3.
Traditional general equilibrium theory, as exemplified in Walras (1874–7) and Hicks (1939), was concerned only with perfect competition, though it was preceded by Cournot’s theory of oligopoly (1838), where perfect competition is only a limiting case of oligopoly. Walras (1874–7, p. 431) admitted that perfect competition is not the only possible system of economic organization and that we must consider the effects of other systems, such as those of monopolies, in order to make a choice between perfect competition and the other systems, as well as to satisfy our scientific curiosity. His theory of monopoly, however, remains a partial equilibrium analysis and no general equilibrium model is developed for an economy which contains monopolies. Hicks was more explicit in excluding monopolies from general equilibrium theory. He insisted that ‘a universal adoption of the assumption of monopoly, must have very destructive consequences for economic theory’ (1939, p. 83). The effect of an increase in demand on price is indeterminate, if the expansion of the firm is stopped not by rising costs, as in the case of competition, but by the limitation of the market, as in the case of monopoly.
This is a textbook on macroeconomic theory that attempts to rework the theory of macroeconomic relations through a re-examination of their microeconomic foundations. In the tradition of Keynes's General Theory of Employment, Interest and Money (published in 1936), and Patinkin's Money, Interest, and Prices, published in 1956 and revised in 1965, this book represents a third generation of macroeconomic theory. This book presents a comprehensive choice-theoretic analysis of the determination of the level of employment and the rate of inflation. A central feature of the book is the recasting of macroeconomic analysis in terms of a theory of exchange under non-market-clearing conditions. In addition, the analysis incorporates other aspects of the current reformulation of macroeconomic theory, including the relation between inflationary expectations, rates of return, and unemployment, the dynamics of aggregate demand, and the significance of incomplete information regarding the spatial distribution of wages and prices.
Thesis (Ph. D. in Economics)--University of California, Berkeley, Dec. 1973. Includes bibliographical references (leaves 101-104). Microfilm. s
Typewritten. Thesis,Ph.D.--Harvard University,1939.
Modern attempts to erect a general theory of money and prices on Walrasian foundations1 have produced a model of economic phonemena that is suspiciously reminiscent of the Classical theory of a barter economy.2 My purpose in this paper is to show that the conception of a money economy implicit in these constructions is empirically and analytically vacuous, and to propose an alternative microfoundation for the pure theory of a money economy.
This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades which--simultaneously--use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.
This article compares the relative performances of barter and monetary arrangements at fixed disequilibrium prices. The decentralized functioning of the two systems is described, and their “fix-price” equilibria compared. It is shown that, while the fix-price equilibria will be more difficult to obtain in the barter economy, they are more efficient than in the monetary economy where disequilibrium “effective demand failures” appear.
Part I argues that the central issue in macroeconomic theory today again concerns, as it did in the 1930's, the self-regulatory capabilities of market systems. Our failure to make better progress towards a generally acknowledged resolution of long ongoing controversies seems in large measure due to the relatively under-developed state of our knowledge pertaining to this question. The theory of effective demand does not deal with all aspects of it, but it deals with hardly anything else. Part II sketches three exploratory ventures in effective demand theory. In turn, it discusses (A) The Theory of Markets and Money, (B) Theories of the Consumption Function, and (C) Quantity Theories of Money Income Determination. Effective demand failures impair the economy's ability to restore itself to a state in which economic activities are reasonably well coordinated. The three avenues of approach explored in Part II all point to the relation between the magnitude of the shock or shocks to which the system is exposed and the size of the "buffer-stocks"-particularly of liquid assets, and most particularly of money-that transactors maintain as critical to whether effective demand failures of major consequence will emerge or not. The theory suggests that the system may be much less able to cope automatically with large than with moderate displacements from its equilibrium time-path. Policy prescriptions for large and for moderate displacements will differ, being-very roughly speaking, indeed-"fiscalist" for the former, "monetarist" for the latter case.
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Towards a Theory of Price Adjustment The Allocation of Economic Resources
- K J Arrow
Short-Run Equilibrium Analysis in a Monetary Economy Allocation under Uncertainty
- J M Grandmont
Equilibres Temporaires Keynésiens
- J M Grandmont
- G Laroque
Involuntary Unemployment and Market Imperfection
- T Negishi
Disequilibrium Theory
- J P Benassy
- U C Crms
- Berkeley
Employment and Inflation
- R J Barro
- H I Grossman
- Money
Sur une notion d’équilibre utilisable dans le cas où les agents économiques ne sont pas assurés de la compatibilité de leurs plans
- Y Younes
Sur les notions d’équilibre et de déséquilibre utilisées dans les modèles décrivant l’évolution d’une économie capitaliste
- Y Younes