IDEAS home Printed from https://ideas.repec.org/a/spr/jeicoo/v10y2015i1p31-55.html
   My bibliography  Save this article

Stochastic macro-equilibrium: a microfoundation for the Keynesian economics

Author

Listed:
  • Hiroshi Yoshikawa

    ()

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 of economic agents and the presence of all kinds of micro shocks facing them. 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, not only the unemployment rate declines, but more workers are employed by firms with higher productivity. The effect of the reservation wage on unemployment also depends on aggregate demand so that the distinction between cyclical and structural unemployment is ambiguous. The model, a general equilibrium model of monopolistic competition with friction and uncertainty provides a micro-foundation for Keynes’ principle of effective demand. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Hiroshi Yoshikawa, 2015. "Stochastic macro-equilibrium: a microfoundation for the Keynesian economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 31-55, April.
  • Handle: RePEc:spr:jeicoo:v:10:y:2015:i:1:p:31-55
    DOI: 10.1007/s11403-014-0142-4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11403-014-0142-4
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Peter Diamond, 2011. "Unemployment, Vacancies, Wages," American Economic Review, American Economic Association, vol. 101(4), pages 1045-1072, June.
    2. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27.
    3. Dale T. Mortensen, 2011. "Markets with Search Friction and the DMP Model," American Economic Review, American Economic Association, vol. 101(4), pages 1073-1091, June.
    4. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    5. Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    7. Ricardo J. Caballero, 2010. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 85-102, Fall.
    8. Solow, Robert M, 1986. "Unemployment: Getting the Questions Right," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 23-34, Supplemen.
    9. Christopher A. Pissarides, 2011. "Equilibrium in the Labor Market with Search Frictions," American Economic Review, American Economic Association, vol. 101(4), pages 1092-1105, June.
    10. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    11. Dreze, Jacques H., 1979. "Demand estimation, risk-aversion and sticky prices," Economics Letters, Elsevier, vol. 4(1), pages 1-6.
    12. Iyetomi, Hiroshi & Nakayama, Yasuhiro & Yoshikawa, Hiroshi & Aoyama, Hideaki & Fujiwara, Yoshi & Ikeda, Yuichi & Souma, Wataru, 2011. "What causes business cycles? Analysis of the Japanese industrial production data," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 246-272, September.
    13. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
    14. Hideaki Aoyama & Hiroshi Yoshikawa & Hiroshi Iyetomi & Yoshi Fujiwara, 2010. "Productivity dispersion: facts, theory, and implications," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 5(1), pages 27-54, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Heterogeneous agents; Microeconomic foundations; Unemployment; Productivity; Entropy; Keynes’ Principle of effective demand; E10; E12; J60;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jeicoo:v:10:y:2015:i:1:p:31-55. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.