Economic Theory

Dynamic Factor Demand in a Rationing Context: Theory and by Werner Smolny PDF

By Werner Smolny

ISBN-10: 3642515126

ISBN-13: 9783642515125

ISBN-10: 3790807125

ISBN-13: 9783790807127

A macroeconomic disequilibrium version is constructed for the Federal Republic of Germany. beginning with a microeconomic version of firm's behaviour, the optimum dynamic adjustment of employment and funding is derived. The version of the company is complemented via an explicite aggregation process which permits to derive macroeconomic family members. The version is envisioned with macroeconomic information for the Federal Republic of Germany. a major function is the constant creation of dynamic adjustment right into a version of the company. a brand new technique is the actual process of a behind schedule adjustment of employment and funding. The estimation effects convey major underutilizations of labour and capital and point out the significance of provide constraints for imports and exports. because the such a lot in demand outcome, they exhibit the significance of the gradual adjustment of employment and funding for the macroeconomic state of affairs in Germany and particularly for the patience of excessive unemployment within the eighties.

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Extra info for Dynamic Factor Demand in a Rationing Context: Theory and Estimation of a Macroeconomic Disequilibrium Model for the Federal Republic of Germany

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121The first comprehensive study with thls methodology after Lambert's work (Lambert (1988), first published as working paper 1984) is Sneesens, Dreze (1986) for Belgium. A. was carried out for the Conference on European Unemployment with the proceedings presented in Dreze, Bean (1990). Extensions ofthls work are Lambert, Mulkay (1987), Lambert (1990), Entod, Konig, Pohlmeier (1988), Franz, Smolny (1990), Smolny (1992), Franz, Heidbrink, Scheremet (1992), Franz, Konig (1990), and Pado&-Schioppa (1990).

The households cannot realize their goods demand and will revise their labour supply downwards, the curve turns upwards. lOS Again, lower employment reduces output and strengthens excess demand on the goods market. The dual decision rule for the firms has an important difference compared with the behaviour of the households: while for the households rationing on both markets is plausible and is consistent with intertemporal optimization because of saving activities, nothing comparable holds for the decision of the firms.

The most theoretical work on the microfoundations of wage and price rigidity focusses on wage determination. e. real wages respond only slowly to market disequilibria. This result, taken together with a perfect flexibility of prices, implies that the economy can always adjust instantaneously to nominal disturbances, and only supply shocks can have lasting effects on output and employment. On the other hand, the old Keynesian theories rely on the inflexibility of nominal wages as the main link between demand changes and employment.

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Dynamic Factor Demand in a Rationing Context: Theory and Estimation of a Macroeconomic Disequilibrium Model for the Federal Republic of Germany by Werner Smolny


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