By Jacques Drèze
This ebook is a range of Jacques Drèze's paintings over the last ten years at the issues of stagflation, lasting unemployment and unused ability. on the theoretical point, the writer has contributed to the formula and research of common equilibrium versions that permit for fee rigidities and extra provide. those types have attention-grabbing macroeconomic implications and lend themselves to econometric implementation. They hence aid to drag jointly separate branches of economics. those types have additionally been came across worthwhile within the examine of similar subject matters, corresponding to equilibrium with expanding returns, public items, fee dynamics and the constraints of salary flexibility. This choice of papers is consultant of efforts via ecu economists to combine micro- and macro-economics, and to take advantage of idea for empirical and coverage reasons. How their pondering constructed, and what contribution of lasting worth it made, is sketched in an outline bankruptcy.
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This ebook is a range of Jacques Drèze's paintings during the last ten years at the themes of stagflation, lasting unemployment and unused capability. on the theoretical point, the writer has contributed to the formula and research of basic equilibrium types that permit for rate rigidities and extra provide.
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Extra info for Underemployment Equilibria: Essays in Theory, Econometrics and Policy
The idea that quantities adjust faster than prices, along such a process, has been stressed by Keynes and some of his commentators, in particular Leijonhufvud (1 968). That idea finds its natural expression in the require ment that all advantageous trades compatible with given prices take place, before prices adjust. That requirement in turn finds expression in the condition that only one side of a given market, the short side, should be subject to quantity rationing. The theory of general equilibrium with rationing has established the feasibility of that condition : Given an arbitrary set of prices, all markets can be made to clear through voluntary trading by imposing quantity constraints on the short side only, and no constraints on the numeraire (money).
But its program remains unfinished, and some extensions - in particular to increasing returns, price dynamics and uncertainty - involve rationing in a natural way. 1. Starting with increasing returns, it stands to reason that firms operating with declining average costs will typically wish to sell more at the same price, precluding existence of competitive equilibria where firms maximise profits at given prices. But competitive equilibria can also be characterised by an alternative set of properties, namely (i) that firms minimise their production costs, (ii) that they supply their output voluntarily (meaning that profits could not be increased by reducing sales), and (iii) that lower output prices would not sustain the same supply.
Of course, macroeconomics had been a general equilibrium venture all along, and Keynes belongs right next to Walras as a founder of that approach. But Walrasian and Keynesian economics had for many years 8 Overview developed along parallel, disjoint paths - an unfortunate development, reflecting the segmentation of our profession, and making life difficult for our students. Keynes was obviously right in attempting to develop a theoretical framework in which the undisputed fact of persistent unemployment could be fitted.