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On the Macroeconomics of Uncertainty and Incomplete Markets

  • Jacques H.DREZE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

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 by-pass price and wage rigidities.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2001011.

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Length: 24
Date of creation: 01 Mar 2001
Date of revision:
Handle: RePEc:ctl:louvre:2001011
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  1. repec:cup:cbooks:9780521479479 is not listed on IDEAS
  2. Dreze, Jacques H., 1979. "Demand estimation, risk-aversion and sticky prices," Economics Letters, Elsevier, vol. 4(1), pages 1-6.
  3. DEHEZ, Pierre & DREZE, Jacques H., . "On supply-constrained equilibria," CORE Discussion Papers RP -576, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. 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.
  5. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
  9. Grandmont, Jean-michel, 1989. "Keynesian issues and economic theory," CEPREMAP Working Papers (Couverture Orange) 8907, CEPREMAP.
  10. Drèze, J. H., . "Walras-Keynes equilibria coordination and macroeconomics," CORE Discussion Papers RP -1309, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. 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.
  12. DREZE, Jacques H. & DURRE, Alain & SNEESSENS, Henri R., . "Investment stimulation, with some reference to housing," CORE Discussion Papers RP -1483, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. 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.
  14. 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.
  15. DREZE, Jacques H., . "Existence of an exchange equilibrium under price rigidites," CORE Discussion Papers RP -225, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. DREZE, Jacques H. & HERINGS, P. Jean-Jacques, 1998. "Continua of underemployment equilibria," CORE Discussion Papers 1998045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
  18. Hahn, F., 1992. "A Remark on Incomplete Market Equilibrium," Papers 179, Cambridge - Risk, Information & Quantity Signals.
  19. 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.
  20. 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.
  21. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  22. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  23. Champsaur, Paul & Dreze, Jacques H & Henry, Claude, 1977. "Stability Theorems with Economic Applications," Econometrica, Econometric Society, vol. 45(2), pages 273-94, March.
  24. 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.
  25. Laan, Gerard van der, 1982. "Simplicial approximation of unemployment equilibria," Journal of Mathematical Economics, Elsevier, vol. 9(1-2), pages 83-97, January.
  26. Jacques H.Drèze & Edmond Malinvaud, 1994. "Croissance et emploi : l'ambition d'une initiative européenne," Revue de l'OFCE, Programme National Persée, vol. 49(1), pages 247-288.
  27. 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).
  28. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  29. 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.
  30. Vickrey, William, 1993. "Today's Task for Economists," American Economic Review, American Economic Association, vol. 83(1), pages 1-10, March.
  31. 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.
  32. Chichilnisky, G., 1992. "Existence and Optimality of a General Equilibrium with Endogenous Uncertainty," Papers 93-11, Columbia - Graduate School of Business.
  33. Bean, Charles R, 1984. "Optimal Wage Bargains," Economica, London School of Economics and Political Science, vol. 51(202), pages 141-49, May.
  34. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  35. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  36. 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).
  37. Gordon, Donald F, 1974. "A Neo-Classical Theory of Keynesian Unemployment," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 431-59, December.
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