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Dynamic (S, s) Economies

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  • Caballero, Ricardo J
  • Engel, Eduardo M R A

Abstract

In this paper, the authors provide a framework to study the aggregate dynamic behavior of an economy where individual units follow (S, s) policies and are subject to aggregate and idiosyncratic shocks. They characterize structural and stochastic heterogeneities that ensure convergence of the economy's aggregate to that of its (stochastic) frictionless counterpart, determine the speed at which convergence takes place, and describe the transitional dynamics of this economy. They study the evolution of the economy's aggregate and the evolution of the difference between this aggregate and that of the difference between this aggregate and that of an economy without microeconomic friction, where the latter pertains to a situation where individual units adjust with no delay to all shocks. Copyright 1991 by The Econometric Society.

Suggested Citation

  • Caballero, Ricardo J & Engel, Eduardo M R A, 1991. "Dynamic (S, s) Economies," Econometrica, Econometric Society, vol. 59(6), pages 1659-1686, November.
    • Handle: RePEc:ecm:emetrp:v:59:y:1991:i:6:p:1659-86
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    1. George A. Akerlof, 1979. "Irving Fisher on his Head: The Consequences of Constant Threshold-Target Monitoring of Money Holdings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(2), pages 169-187.
    2. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 703-725.
    3. Benabou, Roland, 1989. "Optimal Price Dynamics and Speculation with a Storable Good," Econometrica, Econometric Society, vol. 57(1), pages 41-80, January.
    4. Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
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