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Microeconomic Uncertainty and Macroeconomic Indeterminacy

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  • Fagnart, Jean-François

    (Université de Cergy-Pontoise, THEMA)

  • Sneessens, Henri

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Faculté Libre de Sciences Economiques, Lille)

Abstract

We construct a stylised intertemporal macroeconomic model to illustrate how the combination of decentralised trading and microeconomic uncertainty can generate coordination problems and indeterminacy of the macroeconomic equilibrium. With a competitive labour market and a fixed labour supply, the range of equilibria depends mainly on the variance of the idiosyncratic shocks and may thus remain fairly narrow. The situation is different when there is imperfect competition on the labour market. The existence of real rigidities is apt to considerably increase the size of the interval of indeterminacy, for a given variance of the shocks.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001007.

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Length: 30
Date of creation: 01 Apr 2001
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Handle: RePEc:ctl:louvir:2001007

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Keywords: indeterminacy; non-Walrasian economy; equilibrium unemployment; coordination; continuum of equilibria;

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  1. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
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  18. DREZE, Jacques, 1999. "On the macroeconomics of uncertainty and incomplete markets," CORE Discussion Papers 1999064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Fagnart, Jean-François & Sneessens, Henri, 2001. "Microeconomic Uncertainty and Macroeconomic Indeterminacy," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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Cited by:
  1. Fagnart, Jean-Francois & Pierrard, O. & Sneessens, Henri R., 2007. "Microeconomic uncertainty and macroeconomic indeterminacy," European Economic Review, Elsevier, vol. 51(6), pages 1564-1588, August.
  2. Mathä, Thomas Y. & Pierrard, Olivier, 2011. "Search in the product market and the real business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1172-1191, August.

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