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Coordination Problems with Fixed and Flexible Wages: The Role of the Keynesian Multiplier

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  • Guesnerie, R.

Abstract

The paper considers a simple "three goods" model in which firms simultaneously decide hiring workers. The production is sold later at a market clearing price; the buyers'purchasing power depend on their income, that itself depends on the firms'previous decisions. The rational expectations equilibrium is Keynesian whenever the wage is fixed and Walrasian when it is flexible. We examine whether the equilibrium can be Common Knowledge when the model is. In all cases, the keynesian multiplier plays a key role in the mental coordination process under consideration. This role may even be more important in the fully flexible case.

Suggested Citation

  • Guesnerie, R., 1996. "Coordination Problems with Fixed and Flexible Wages: The Role of the Keynesian Multiplier," DELTA Working Papers 96-07, DELTA (Ecole normale supérieure).
    • Handle: RePEc:del:abcdef:96-07
    as

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    More about this item

    Keywords

    WAGES; LABOUR MARKET; MACROECONOMICS;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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