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Prices, productivity and irregular cycles in a walrasian labour market

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  • Luciano Fanti
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    Abstract

    A standard Cobb Douglas labour market model is used to examine the role of changes in prices and productivity on the stability. It is shown that in this walrasian labour market deterministic endogenous economic fluctuations, which are seemingly stochastic, emerge. Therefore it may be argued that the controversial - in empirical as well as theoretical recent literature – co-movement between variables does not necessarily ground on stochastic shocks on prices and technology as retained in the prevailing business cycle theory. In particular, we show that negative shocks on prices and productivity are always destabilising and trigger robust chaotic fluctuations.

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    Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2012/152.

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    Date of creation: 01 Sep 2012
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    Handle: RePEc:pie:dsedps:2012/152

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    1. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
    2. Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August.
    3. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
    4. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
    5. Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
    6. Chichilnisky, Graciela & Heal, Geoffrey & Lin, Yun, 1995. "Chaotic price dynamics, increasing returns and the Phillips curve," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 279-291, July.
    7. Luciano Fanti & Piero Manfredi, 2010. "Is Labour Market Flexibility Desirable Or Harmful? A Further Dynamic Perspective," Metroeconomica, Wiley Blackwell, vol. 61(2), pages 257-266, 05.
    8. Marchetti, Domenico J. & Nucci, Francesco, 2005. "Price stickiness and the contractionary effect of technology shocks," European Economic Review, Elsevier, vol. 49(5), pages 1137-1163, July.
    9. Baumol, William J., 2000. "Out of Equilibrium," Structural Change and Economic Dynamics, Elsevier, vol. 11(1-2), pages 227-233, July.
    10. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, vol. 40(3), pages 549-63, May.
    11. Barzel, Yoram & McDonald, Richard J, 1973. "Assets, Subsistence, and The Supply Curve of Labor," American Economic Review, American Economic Association, vol. 63(4), pages 621-33, September.
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