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An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages

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  • Roberts, John

Abstract

This paper presents a general-equilibrium model in which all prices and quantities transacted are the direct choices of econom ic agents: there is no Walrasian auctioneer. Multiple subgame perfect equilibria exist with prices and wages at their Walrasian levels. Among the equilibrium allocations are the Walrasian ones, but there a re also outcomes in which price- and wage-taking workers are rationed in the labor market and are unable to sell all the labor they want a t the prevailing wage. This involuntary unemployment results from sel f-fulfilling expectations of inadequate excess demand as in some inte rpretations of Keynes's ideas. Copyright 1987 by American Economic Association.

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  • Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-874, December.
  • Handle: RePEc:aea:aecrev:v:77:y:1987:i:5:p:856-74
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    References listed on IDEAS

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    1. Olivier J. Blanchard, 1986. "The Wage Price Spiral," The Quarterly Journal of Economics, Oxford University Press, pages 543-565.
    2. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc.
    3. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
    4. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    5. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, pages 637-658.
    6. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 287-303.
    7. Simon, Julian L, 1969. "A Further Test of the Kinky Oligopoly Demand Curve," American Economic Review, American Economic Association, pages 971-975.
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    Citations

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    Cited by:

    1. Citanna, Alessandro & Cres, Herve & Dreze, Jacques & Herings, P. Jean-Jacques & Villanacci, Antonio, 2001. "Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices," Journal of Mathematical Economics, Elsevier, pages 169-200.
    2. Sniekers, F.J.T., 2013. "Endogenous Beveridge cycles and the volatility of unemployment," CeNDEF Working Papers 13-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    3. Russell Cooper & Andrew John, 2000. "Imperfect competition and macroeconomics : Theory and quantitative implications," Cahiers d'Économie Politique, Programme National Persée, vol. 37(1), pages 289-328.
    4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 247-302 National Bureau of Economic Research, Inc.
    5. Alessandro Citanna & Hervé Crès & Jacques H Drèze & P. Jean-Jacques Herings & Antonio Villanacci, 2001. "Underemployment of Resources and Self-Fulfilling Beliefs: Nonwalrasian Allocations at Walrasian Prices," Working Papers hal-01064886, HAL.
    6. O. Scaillet, 2001. "Density Estimation Using Inverse and Reciprocal Inverse Gaussian Kernels," THEMA Working Papers 2001-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. DREZE, Jacques, 1999. "On the macroeconomics of uncertainty and incomplete markets," CORE Discussion Papers 1999064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Herings, P. Jean-Jacques & van der Laan, Gerard & Talman, Dolf, 2009. "Equilibria with coordination failures," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 23-37, January.
    9. Dreze, Jacques H., 1997. "Walras--Keynes equilibria coordination and macroeconomics," European Economic Review, Elsevier, vol. 41(9), pages 1735-1762, December.
    10. Huck, Steffen, 1996. "Rationing and rationality," European Journal of Political Economy, Elsevier, vol. 12(4), pages 641-669, December.
    11. Robert Boyer & André Orléan, 1991. "Les transformations des conventions salariales entre théorie et histoire : d'Henry Ford au fordisme," Revue Économique, Programme National Persée, vol. 42(2), pages 233-272.
    12. Herings, P.J.J. & Dreze, J., 1998. "Continua of Underemployment Equilibria," Discussion Paper 1998-05, Tilburg University, Center for Economic Research.
    13. Julien, Ludovic A., 2003. "Chômage d’équilibre, équilibres multiples et défauts de coordination," L'Actualité Economique, Société Canadienne de Science Economique, vol. 79(4), pages 523-562, Décembre.
    14. Fagnart, Jean-Francois & Pierrard, O. & Sneessens, Henri R., 2007. "Microeconomic uncertainty and macroeconomic indeterminacy," European Economic Review, Elsevier, pages 1564-1588.
    15. Michel de Vroey, 2005. "Have the Early Coordination Failures Models Achieved Keynes's Programme ?," Revue d'économie politique, Dalloz, vol. 115(4), pages 417-436.
    16. Mauro Boianovsky & Roger Backhouse, 2006. "Whatever Happened To Microfoundations?," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 76, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    17. Greg Kaplan & Guido Menzio, 2016. "Shopping Externalities and Self-Fulfilling Unemployment Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 124(3), pages 771-825.
    18. Seonghwan Oh & Michael Waldman, 1989. "Keynesian Coordination Failure and Persistence," UCLA Economics Working Papers 570, UCLA Department of Economics.
    19. Jacques H. Drèze, 2000. "Sur la macroéconomie de l'incertitude et des marchés incomplets," Revue de l'OFCE, Programme National Persée, vol. 72(1), pages 7-37.
    20. Maarten C.W. Janssen, 2006. "Microfoundations," Tinbergen Institute Discussion Papers 06-041/1, Tinbergen Institute.
    21. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
    22. Roberto Burguet & Jozsef Sakovics, 2016. "Bidding for input in oligopoly," ESE Discussion Papers 266, Edinburgh School of Economics, University of Edinburgh.
    23. repec:spo:wpecon:info:hdl:2441/10287 is not listed on IDEAS
    24. Ronald Balvers, 1992. "A Keynesian general equilibrium model with competitive firms and rational expectations," Journal of Economics, Springer, vol. 56(1), pages 23-38, February.
    25. Shadman-Mehta, Fatemeh & Sneessens, Henri R., 1998. "Demand-Supply Interactions and Unemployment Dynamics: Can there be Path Dependency ? The Case of Belgium, 1955-1994," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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