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Perfect Competition and the Keynesian Cross:Revisiting Tobin

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  • Partha Sen

    (Delhi School of Economics)

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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Bibliographic 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
Date of revision:
Handle: RePEc:cde:cdewps:135

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

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  1. Willem H. Buiter, 1979. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," NBER Working Papers 0352, National Bureau of Economic Research, Inc.
  2. Philippe Weil, 1989. "Increasing Returns and Animal Spirits," Sciences Po publications info:hdl:2441/8681, Sciences Po.
  3. 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.
  4. Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
  5. Torsten Persson, 1983. "Deficits and Intergenerational Welfare in Open Economies," NBER Working Papers 1083, National Bureau of Economic Research, Inc.
  6. Jordi GalĂ­, 1993. "Monopolistic competition, business cycles and the composition of aggregate demand," Economics Working Papers 45, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 147-56, January.
  8. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
  9. 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.
  10. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November.
  11. 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.
  12. 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.
  13. Solow,Robert M., 1998. "Monopolistic Competition and Macroeconomic Theory," Cambridge Books, Cambridge University Press, number 9780521623384, October.
  14. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November.
  15. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  16. Startz, Richard, 1984. "Prelude to Macroeconomics," American Economic Review, American Economic Association, vol. 74(5), pages 881-92, December.
  17. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13.
  18. Howitt, Peter & McAfee, R Preston, 1992. "Animal Spirits," American Economic Review, American Economic Association, vol. 82(3), pages 493-507, June.
  19. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521004268, October.
  20. Matsuyama, Kiminori, 1991. "Immiserizing Growth in Diamond's Overlapping Generations Model: A Geometrical Exposition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 251-62, February.
  21. Cremers, Emily, 2001. "General Equilibrium with Trade Balance and Real Interest Rate Parity," Staff General Research Papers 34859, Iowa State University, Department of Economics.
  22. 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.
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