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Partial Adjustment without Apology

Author

Listed:
  • Robert G. King
  • Julia K. Thomas

Abstract

Many kinds of economic behavior appear to be governed by discrete and occasional individual choices. Yet, econometric partial adjustment models perform well, though imperfectly, at the aggregate level. Analyzing the classic employment adjustment problem, we show why discrete and occasional microeconomic adjustment will be well described by a new form of the partial adjustment model that aggregates the actions of a large number of heterogenous producers. Moreover, in contrast to existing models of discrete adjustment, our generalized partial adjustment model is sufficiently tractable to allow extension to general equilibrium.

Suggested Citation

  • Robert G. King & Julia K. Thomas, "undated". "Partial Adjustment without Apology," GSIA Working Papers 1999-E12, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:277
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    File URL: http://www.tepper.cmu.edu/andrew/jkt/www/KingThomasSept00.pdf
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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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