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On the macroeconomics of uncertainty and incomplete markets

  • DREZE, Jacques

    ()

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Presidential address for the Twelfth World Congress of the International Economic Association, summarising semi-formally the author’s recent work and concerns. Uncertainty and incomplete markets breed demand volatility as well as price and wage rigidities. The conjunction of these leads to multiple, volatile supply-constrained equilibria, typically reflecting coordination failures and apt to display persistence - as documented by three supporting theorems. Specific implications are linked to the conclusions that we should take coordination failures seriously, try to obviate demand volatility and try to bypass price and wage rigidities.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999064.

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Date of creation: 01 Nov 1999
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Handle: RePEc:cor:louvco:1999064
Contact details of provider: Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
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Web page: http://www.uclouvain.be/core
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  1. Herings, P.J.J. & van der Laan, G. & Talman, A.J.J., 1998. "Price-Quantity Adjustment in a Keynesian Economy," Discussion Paper 1998-118, Tilburg University, Center for Economic Research.
  2. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
  3. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  4. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479.
  5. Dreze, J., 1989. "The Role Of Securities And Labour Contracts In The Optimal Allocation Of Risk-Bearing," CORE Discussion Papers 1989008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
  7. van der Laan, Gerard, 1984. "Supply-constrained fixed price equilibria in monetary economies," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 171-187, October.
  8. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  9. Champsaur, Paul & Dreze, Jacques H & Henry, Claude, 1977. "Stability Theorems with Economic Applications," Econometrica, Econometric Society, vol. 45(2), pages 273-94, March.
  10. Jacques H Drèze & Edmond Malinvaud & Paul De Grauwe & Louis Gevers & Alexander Italianer & Olivier Lefebvre & Maurice Marchand & Henri Sneessens & Alfred Steinherr & Paul Champsaur & Jean-Michel Charp, 1994. "Croissance et emploi : l'ambition d'une initiative européenne," Sciences Po publications info:hdl:2441/5637, Sciences Po.
  11. Bean, Charles R, 1984. "Optimal Wage Bargains," Economica, London School of Economics and Political Science, vol. 51(202), pages 141-49, May.
  12. Dreze, Jacques H., 1979. "Demand estimation, risk-aversion and sticky prices," Economics Letters, Elsevier, vol. 4(1), pages 1-6.
  13. Gordon, Donald F, 1974. "A Neo-Classical Theory of Keynesian Unemployment," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 431-59, December.
  14. Dreze, Jacques H. & Gollier, Christian, 1993. "Risk sharing on the labour market and second-best wage rigidities," European Economic Review, Elsevier, vol. 37(8), pages 1457-1482, December.
  15. Chichilnisky, G., 1992. "Existence and Optimality of a General Equilibrium with Endogenous Uncertainty," Papers 93-11, Columbia - Graduate School of Business.
  16. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
  17. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  18. Grandmont, Jean-Michel, 1989. " Keynesian Issues and Economic Theory," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 265-93.
  19. Lubrano, M. & Shadman-Metha, F. & Sneessens, H.R., 1993. "Real Wages, Quantity Constraints and Equilibrium Unemployment: Belgium, 1955-1988," G.R.E.Q.A.M. 93b02, Universite Aix-Marseille III.
  20. Dehez, Pierre & Dreze, Jacques H., 1984. "On supply-constrained equilibria," Journal of Economic Theory, Elsevier, vol. 33(1), pages 172-182, June.
  21. Vickrey, William, 1993. "Today's Task for Economists," American Economic Review, American Economic Association, vol. 83(1), pages 1-10, March.
  22. Greenwald, Bruce C & Stiglitz, Joseph E, 1990. "Asymmetric Information and the New Theory of the Firm: Financial Constraints and Risk Behavior," American Economic Review, American Economic Association, vol. 80(2), pages 160-65, May.
  23. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  24. Jacques H. DREZE & Alain DURRE & Henri R. SNEESSENS, 2000. "Investment Stimulation, with Some Reference to Housing," Discussion Papers (REL - Recherches Economiques de Louvain) 2000013, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  25. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  26. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  27. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  28. Herings, P.J.J. & Dreze, J., 1998. "Continua of Underemployment Equilibria," Discussion Paper 1998-05, Tilburg University, Center for Economic Research.
  29. Pencavel, John, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 197-225.
  30. Hahn, F., 1992. "A Remark on Incomplete Market Equilibrium," Papers 179, Cambridge - Risk, Information & Quantity Signals.
  31. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  32. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-74, December.
  33. Shadman-Mehta, Fatemeh & Sneessens, Henri R., 1998. "Demand-Supply Interactions and Unemployment Dynamics: Can there be Path Dependency ? The Case of Belgium, 1955-1994," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  34. Dehez, Pierre & Dreze, Jacques, 1988. "Competitive equilibria with quantity-taking producers and increasing returns to scale," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 209-230, April.
  35. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
  36. Laan, Gerard van der, 1982. "Simplicial approximation of unemployment equilibria," Journal of Mathematical Economics, Elsevier, vol. 9(1-2), pages 83-97, January.
  37. DREZE, Jacques H., 1997. "Walras-Keynes equilibria coordination and macroeconomics," CORE Discussion Papers 1997051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  38. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
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