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Microeconomic uncertainty and macroeconomic indeterminacy

  • Fagnart, Jean-Francois
  • Pierrard, O.
  • Sneessens, Henri R.

We construct a stylised intertemporal macroeconomic model to illustrate how the combination of decentralised trading and microeconomic uncertainty can generate coordination problems and indeterminacy of the macroeconomic equilibrium. With a competitive labour market and a fixed labour supply, the range of equilibria depends mainly on the variance of the idiosyncratic shocks and may thus remain fairly narrow. The situation is different when there is imperfect competition on the labour market. The existence of real rigidities is apt to considerably increase the size of the interval of indeterminacy, for a given variance of the shocks.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 6 (August)
Pages: 1564-1588

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:6:p:1564-1588
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