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Stochastic macro-equilibrium: a microfoundation for the Keynesian economics

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  • Hiroshi Yoshikawa

Abstract

In place of the standard search equilibrium, this paper presents an alternative concept of stochastic macro-equilibrium based on the principle of statistical physics. This concept of equilibrium is motivated by unspecifiable differences of economic agents and the presence of all kinds of micro shocks facing them. Our model mimics the empirically observed distribution of labor productivity. The distribution of productivity resulting from the matching of workers and firms depends crucially on aggregate demand. When aggregate demand rises, not only the unemployment rate declines, but more workers are employed by firms with higher productivity. The effect of the reservation wage on unemployment also depends on aggregate demand so that the distinction between cyclical and structural unemployment is ambiguous. The model, a general equilibrium model of monopolistic competition with friction and uncertainty provides a micro-foundation for Keynes’ principle of effective demand. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Hiroshi Yoshikawa, 2015. "Stochastic macro-equilibrium: a microfoundation for the Keynesian economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 31-55, April.
    • Handle: RePEc:spr:jeicoo:v:10:y:2015:i:1:p:31-55
    DOI: 10.1007/s11403-014-0142-4
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    Cited by:

    1. Hiroki Murakami, 2019. "A note on the “unique” business cycle in the Keynesian theory," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 384-404, July.
    2. YOSHIKAWA Hiroshi & ARATA Yoshiyuki, 2023. "A Reconsideration of Microeconomic Foundations of Macroeconomics," Discussion papers 23079, Research Institute of Economy, Trade and Industry (RIETI).
    3. Murakami, Hiroki, 2020. "Monetary policy in the unique growth cycle of post Keynesian systems," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 39-49.

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    More about this item

    Keywords

    Heterogeneous agents; Microeconomic foundations; Unemployment; Productivity; Entropy; Keynes’ Principle of effective demand; E10; E12; J60;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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