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A Disequilibrium Rational Expectations Model with Walrasian Prices and Involuntary Unemployment

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  • Paul Madden

Abstract

A fixprice, non-Walrasian temporary equilibrium which co-exists with the Walrasian equilibrium at Walrasian temporary equilibrium prices, has been called "unsatisfactory" by Hahn. If consumers live, and work, for two periods, expectations of future unemployment easily (in particular with normal goods) generate unsatisfactory Keynesian unemployment equilibria, if these expectations reflect serial correlation in unemployment. Assuming that the choice of temporary equilibrium (Walrasian or Keynesian) is governed by an extraneous, "serially correlated" random variable (sunspots), a long-run equilibrium of an overlapping-generations model is presented which has persistent Walrasian prices, rational expectations and intermittent phases of Keynesian unemployment and Walrasian full employment.

Suggested Citation

  • Paul Madden, 1992. "A Disequilibrium Rational Expectations Model with Walrasian Prices and Involuntary Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 831-844.
    • Handle: RePEc:oup:restud:v:59:y:1992:i:4:p:831-844.
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    File URL: http://hdl.handle.net/10.2307/2298000
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    Cited by:

    1. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, January.
    2. Tetsuya Nakajima, 2010. "A Simple Model Of Keynesian Unemployment," Metroeconomica, Wiley Blackwell, vol. 61(2), pages 239-256, May.
    3. Ezra Davar, 2016. "Unemployment: Walras’S Voluntary And Keynes’S Involuntary," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(3), pages 605-629, September.
    4. Ogawa, Shogo, 2021. "One Suggestion for Microfoundation of Non-Walrasian Disequilibrium Macroeconomics: Matching Theory with Dual Decision," MPRA Paper 106636, University Library of Munich, Germany.
    5. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

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