Coordination Problems with Fixed and Flexible Wages: The Role of the Keynesian Multiplier
AbstractThe 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.
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Bibliographic InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 96-07.
Length: 37 pages
Date of creation: 1996
Date of revision:
WAGES; LABOUR MARKET; MACROECONOMICS;
Find related papers by 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
- 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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