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Perfect Competition and the Keynesian Cross:Revisiting Tobin

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Author Info
Partha Sen (Delhi School of Economics)

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Abstract

I look at an exogenous decrease in the desire to save in a two-sector-two-period overlapping generations model, where the consumption good is capital-intensive and the elasticities of substitution in production are "small". It is shown that there is a Keynesian-type multiplier at work, even though the model is a competitive one with full employment (and inelastic labour supply). It is reminiscent of Tobin (1975) who had shown thirty years ago that Keynesian results could be obtained with (short run) Marshallian dynamics (albeit in an ad-hoc model).

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Publisher Info
Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 135.

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Length: 21 pages
Date of creation: May 2005
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Handle: RePEc:cde:cdewps:135

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Related research
Keywords: Overlapping Generations; Two-sector Models; Multiplier; Keynesian Cross.;

Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  2. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November. [Downloadable!] (restricted)
  3. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
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  5. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June. [Downloadable!] (restricted)
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  6. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June. [Downloadable!] (restricted)
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  7. Weil, Philippe, 1989. "Increasing Returns and Animal Spirits," American Economic Review, American Economic Association, vol. 79(4), pages 889-94, September. [Downloadable!] (restricted)
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  13. Kiminori Matsuyama, 1986. "Immiserizing Growth in Diamond's Overlapping Generations Model: AGeometrical Exposition," Discussion Papers 737, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  14. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 147-56, January. [Downloadable!] (restricted)
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  15. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
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  17. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-11, Sept.-Oct. [Downloadable!] (restricted)
  18. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June. [Downloadable!] (restricted)
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