On Short - Run Expectational Coordination : Fixed versus Flexible wages
This paper considers a simple "three goods" model and focuses attention on the expectational stability of its equilibria. The setting allows us to describe stylised general equilibrium macro interactions : firms hire workers and then sell production to buyers whose purchasing power depends on the firms'previous decisions. We assess expectational stability from an "educative" learning procedure that reflects basic rationality considerations. From our viewpoint on coordination, we compare the merits of fixed wages versus flexible wages. Although in both cases the same factors - supply and demand elesticities, marginal propensity to save - are effective, expectational coordination is more often successful with flexible wages.
|Date of creation:||2000|
|Publication status:||Published in Quarterly Journal of Economics, 2001|
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