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Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model

Author

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  • Federico Bassi

    (Dipartimento di Scienze Sociali ed Economiche - UNIROMA - Università degli Studi di Roma "La Sapienza" = Sapienza University [Rome], CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

Abstract

In standard new consensus macroeconomics models, the impact of shocks disappears until the economy reaches a time-independent steady-state equilibrium. Introducing sunk costs and capital indivisibilities in capacity adjustment decisions implies the rejection of asymptotic stability and a reconsideration of the relevance and usefulness of traditional steady-state analysis based on a fixed and exogenous ‘center of gravity'. Moreover, effective demand and Keynesian discretionary policies regain a central role in economic policy by determining the transient equilibriums that emerge endogenously

Suggested Citation

  • Federico Bassi, 2016. "Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model," Post-Print hal-01406476, HAL.
    • Handle: RePEc:hal:journl:hal-01406476
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