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Dynamic factor demand in a rationing model

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  • Werner Smolny

Abstract

In this paper, a dynamic decision model of the firm with a delayed adjustment of employment and investment is developed. Special attention is devoted to dynamic inefficiencies, i.e. underutilizations of the capital stock and labour hoarding. Market disequilibrium is introduced by allowing for a sluggish adjustment of wages and prices. The model of the firm is complemented by explicit aggregation, and the aggregate model is estimated for the FRG for the period 1960 to 1989. The empirical results reveal that dynamic adjustment constraints for employment and capital contributed to the persistence of unemployment in Germany in the 1980s.

Suggested Citation

  • Werner Smolny, 1997. "Dynamic factor demand in a rationing model," Applied Economics, Taylor & Francis Journals, vol. 29(8), pages 1091-1101.
  • Handle: RePEc:taf:applec:v:29:y:1997:i:8:p:1091-1101
    DOI: 10.1080/000368497326480
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    References listed on IDEAS

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    1. Gerard A. Pfann & Franz C. Palm, 1993. "Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 397-412.
    2. Sneessens, H. & Dreze, J., 1985. "A discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics," CORE Discussion Papers 1985040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Sneessens, Henri R & Dreze, Jacques H, 1986. "A Discussion of Belgian Unemployment, Combining Traditional Concepts and Disequilibrium Econometrics," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 89-119, Supplemen.
    4. Kooiman, P, 1984. "Smoothing the Aggregate Fix-Price Model and the Use of Business Survey Data," Economic Journal, Royal Economic Society, vol. 94(376), pages 899-913, December.
    5. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
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