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Imperfectly Competitive Cycles with Keynesian and Walrasian Features

  • L Kaas
  • P Madden
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We consider a multi–sector overlapping generations model with oligopolistic firms in the output markets and wage–setting trade unions in the labour markets. A coordination problem between firms creates multiple temporary equilibria which are either Walrasian or of the Keynesian unemployment type. There exist many deterministic and stochastic equilibrium cycles fluctuating between Keynesian recession and Walrasian boom periods with arbitrarily long phases in each regime. The cycles are in accordance with certain empirical regularities. Money is neutral and superneutral, but appropriate countercyclical fiscal policies stabilize the cycles in a textbook Keynesian way.

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 20.

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Length: 35 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:man:cgbcrp:20
Contact details of provider: Postal: Manchester M13 9PL
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  1. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
  2. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Unemployment in an extended Cournot oligopoly model," CORE Discussion Papers RP 843, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Costas Azariadis & Roger Guesnerie, 1986. "Sunspots and Cycles," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 725-737.
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  6. Schultz, Christian, 1992. "The impossibility of involuntary unemployment in an overlapping generations model with rational expectations," Journal of Economic Theory, Elsevier, vol. 58(1), pages 61-76, October.
  7. Jacobsen, Hans Jorgen & Schultz, Christian, 1994. "On the effectiveness of economic policy when competition is imperfect and expectations are rational," European Economic Review, Elsevier, vol. 38(2), pages 305-327, February.
  8. Grandmont Jean-michel & Laroque Guy, 1985. "Stability of cycles and expectations," CEPREMAP Working Papers (Couverture Orange) 8519, CEPREMAP.
  9. Grandmont, Jean-Michel, 1986. "Stabilizing competitive business cycles," Journal of Economic Theory, Elsevier, vol. 40(1), pages 57-76, October.
  10. Rankin, Neil, 1992. "Imperfect Competition, Expectations and the Multiple Effects of Monetary Growth," Economic Journal, Royal Economic Society, vol. 102(413), pages 743-53, July.
  11. Jordi Galí, 1993. "Monopolistic competition, business cycles and the composition of aggregate demand," Economics Working Papers 45, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Hassan Molana & Thomas Moutos, 1991. "A Note on Taxation, Imperfect Competition and the Balanced Budget Multiplier," Working Papers Series 91/4, University of Stirling, Division of Economics.
  13. Marta Aloi & Teresa Lloyd-Braga & Hans Jørgen Whitta-Jacobsen, 2002. "Endogenous Business Cycles and Systematic Stabilization Policy," EPRU Working Paper Series 02-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  14. Sichel, D.E., 1988. "Business Cycle Asymmetry: A Deeper Look," Papers 85, Princeton, Department of Economics - Financial Research Center.
  15. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  16. Leo Kaas & Paul Madden, 2004. "A new model of equilibrium involuntary unemployment," Economic Theory, Springer, vol. 23(3), pages 507-527, March.
  17. McQueen, Grant & Thorley, Steven, 1993. "Asymmetric business cycle turning points," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 341-362, June.
  18. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
  19. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  20. Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-60, March.
  21. Kaas, Leo & Madden, Paul, 2004. "Non-existence of market-clearing wages when the output market is imperfectly competitive," Economics Letters, Elsevier, vol. 84(2), pages 175-182, August.
  22. Kaas, Leo, 1998. "Multiplicity of Cournot Equilibria and Involuntary Unemployment," Journal of Economic Theory, Elsevier, vol. 80(2), pages 332-349, June.
  23. Silvestre, J., 1994. "Market Power in Macroeconomic Models: New Developments," Papers 94-07, California Davis - Institute of Governmental Affairs.
  24. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen.
  25. Rankin, Neil, 1995. "Money in Hart's model of imperfect competition," European Journal of Political Economy, Elsevier, vol. 11(3), pages 557-575, September.
  26. Benassy, Jean-Pascal, 1993. "Nonclearing Markets: Microeconomic Concepts and Macroeconomic Applications," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 732-61, June.
  27. Paul Madden & Esma Gaygisiz, 2002. "Macroeconomic coordination failure under oligempory," Economic Theory, Springer, vol. 20(1), pages 93-112.
  28. Rivard Brian A., 1994. "Monopolistic Competition, Increasing Returns, and Self-Fulfilling Prophecies," Journal of Economic Theory, Elsevier, vol. 62(2), pages 346-362, April.
  29. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June.
  30. Parent, Daniel, 2000. "Industry-Specific Capital and the Wage Profile: Evidence from the National Longitudinal Survey of Youth and the Panel Study of Income Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 306-23, April.
  31. Oliver Hart, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 109-138.
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