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Short-run Rigidities and Long-run Equilibrium in Large-scale Macroeconometric Models

In: Market Behaviour and Macroeconomic Modelling

Author

Listed:
  • Keith B. Church
  • Peter R. Mitchell
  • Kenneth F. Wallis

Abstract

A widespread response to the persistence of high unemployment in many OECD countries has been an increased emphasis on structural features of the economy, especially in respect of the functioning—or malfunctioning— of labour markets, and a corresponding reduction of emphasis on demand management policies. Indeed, to stimulate demand would be seen as an inappropriate response to ‘structural’ unemployment, causing inflation to rise instead. This is consistent with a neo-classical view of the world, at least in respect of its long-run equilibrium properties, in which the level of real activity is independent of the steady-state inflation rate. In the short run, however, a more Keynesian view might be appropriate, due to real and nominal rigidities in the determination of wages and prices which result in a relatively slow process of dynamic adjustment to equilibrium.

Suggested Citation

  • Keith B. Church & Peter R. Mitchell & Kenneth F. Wallis, 1998. "Short-run Rigidities and Long-run Equilibrium in Large-scale Macroeconometric Models," Palgrave Macmillan Books, in: Steven Brakman & Hans Ees & Simon K. Kuipers (ed.), Market Behaviour and Macroeconomic Modelling, chapter 9, pages 221-241, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-26732-3_9
    DOI: 10.1007/978-1-349-26732-3_9
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    Cited by:

    1. Neil R. Ericsson & John S. Irons & Ralph W. Tryon, 2001. "Output and inflation in the long run," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 241-253.

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