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An Old-Keynesian Note on Destabilizing Price Flexibility

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Author Info

  • Peter Flaschel
  • Reiner Franke

Abstract

Tobin's (1975) macrodynamic model on 'recession and depression' is extended by introducing two separate adjustment rules for money wages and the price level. It turns out that sluggish prices and, under an additional assumption, also sticky wages are favourable for local stability of the long-run equilibrium, while a high degree of flexibility tends to be destabilizing. In addition, a disposition to cyclical behaviour is indicated.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09538250050127454
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Review of Political Economy.

Volume (Year): 12 (2000)
Issue (Month): 3 ()
Pages: 273-283

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Handle: RePEc:taf:revpoe:v:12:y:2000:i:3:p:273-283

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  1. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-44, December.
  2. Caballero, Ricardo J. & Engel, Eduardo M. R. A., 1993. "Microeconomic rigidities and aggregate price dynamics," European Economic Review, Elsevier, vol. 37(4), pages 697-711, May.
  3. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
  4. James Tobin, 1992. "An Old Keynesian Counterattacks," Eastern Economic Journal, Eastern Economic Association, vol. 18(4), pages 387-400, Fall.
  5. Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February.
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Cited by:
  1. Peter Skott, 2004. "Mythical Ages and Methodological Strictures - Joan Robinson's Contributions to the Theory of Economic Growth," UMASS Amherst Economics Working Papers 2004-09, University of Massachusetts Amherst, Department of Economics.
  2. Hansjorg Klausinger, 2002. "A Note on the Stability of Full Employment," Review of Political Economy, Taylor & Francis Journals, vol. 14(2), pages 211-225.

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