Towards A Reconstruction of Keynesian Economics: Expectations and Constrained Equilibria
A two-period model of temporary equilibrium with rationing is presented, paying particular attention to agents' expectations of future constraints. it is shown that with arbitrary constraint expectations many different types of current equilibria may be consistent with the same set of (current and expected future) wages and prices, and that constraint expectations tend to be self-fulfilling (e.g., a higher expectation of Keynesian unemployment tomorrow increases the probability that it will prevail today). In addition, rational constraint expectations (i.e., perfect foresight of future constraint levels) are shown to enhance rather than reduce the effectiveness of government policy.
|Date of creation:||Aug 1979|
|Publication status:||published as Neary, J. Peter and Joseph E. Stiglitz. "Towards A Reconstruction of Keynesian Economics: Expectations and Constrained Equilibria." Quarterly Journal of Economics, Vol. 98, Supplement, (1983), pp. 199-228.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Dixit, Avinash, 1976.
"Public finance in a Keynesian temporary equilibrium,"
Journal of Economic Theory,
Elsevier, vol. 12(2), pages 242-258, April.
- Dixit, Avinash, 1975. "Public Finance in a Keynesian Temporary Equilibrium," The Warwick Economics Research Paper Series (TWERPS) 67, University of Warwick, Department of Economics.
- Avinash Dixit, 1978. "The Balance of Trade in a Model of Temporary Equilibrium with Rationing," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 393-404.
- Dixit, Avinash, 1976. "The Balance of Trade in a Model of temporary Equilibrium with Rationing," The Warwick Economics Research Paper Series (TWERPS) 098, University of Warwick, Department of Economics.
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- Blad, M.C. & Kirman, A.P., 1978. "The Long Run Evolution of a Rationed Equilibrium Model," The Warwick Economics Research Paper Series (TWERPS) 128, University of Warwick, Department of Economics.
- Bohm, Volker, 1978. "Disequilibrium dynamics in a simple macroeconomic model," Journal of Economic Theory, Elsevier, vol. 17(2), pages 179-199, April.
- Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics,in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
- Grandmont, Jean-Michel, 1977. "Temporary General Equilibrium Theory," Econometrica, Econometric Society, vol. 45(3), pages 535-572, April.
- Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March. Full references (including those not matched with items on IDEAS)
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