Stochastic Macro-equilibrium and Microfoundations for Keynesian Economics
AbstractIn place of the standard search equilibrium, this paper presents an alternative concept of stochastic macro-equilibrium based on the principle of statistical physics. This concept of equilibrium is motivated by unspecifiable differences in economic agents and the presence of all kinds of micro shocks in the macroeconomy. Our model mimics the empirically observed distribution of labor productivity. The distribution of productivity resulting from the matching of workers and firms depends crucially on aggregate demand. When aggregate demand rises, more workers are employed by firms with higher productivity while, at the same time, the unemployment rate declines. The model provides a micro-foundation for Keynes' principle of effective demand.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13039.
Length: 53 pages
Date of creation: May 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-22 (All new papers)
- NEP-MAC-2013-05-22 (Macroeconomics)
- NEP-PKE-2013-05-22 (Post Keynesian Economics)
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