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Stochastic Macro-equilibrium and Microfoundations for Keynesian Economics

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  • YOSHIKAWA Hiroshi
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    Abstract

    In 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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    File URL: http://www.rieti.go.jp/jp/publications/dp/13e039.pdf
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    Bibliographic Info

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13039.

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    Length: 53 pages
    Date of creation: May 2013
    Date of revision:
    Handle: RePEc:eti:dpaper:13039

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    1. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
    2. N. Gregory Mankiw, 1989. "Real Business Cycles: A New Keynesian Perspective," NBER Working Papers 2882, National Bureau of Economic Research, Inc.
    3. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
    4. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
    5. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27.
    6. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    7. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    8. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    9. Hideaki Aoyama & Hiroshi Yoshikawa & Hiroshi Iyetomi & Yoshi Fujiwara, 2010. "Productivity dispersion: facts, theory, and implications," Journal of Economic Interaction and Coordination, Springer, vol. 5(1), pages 27-54, June.
    10. Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
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