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Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model

Listed author(s):
  • Olivier J. Blanchard
  • Jeffrey Sachs

This paper presents an intertemporal disequilibrium model with rational expectations, i.e. a model in which agents anticipate the future rationally, but in which prices and wages may not adjust fast enough to maintain continuous market clearing. Therefore, optimizing firms and households base their intertemporal plans on anticipations of both future quantity constraints and future prices. Such a model shows clearly that the effect of a policy depends not only on its current values but its anticipated path, After a presentation of the model and its basic dynamics, we therefore consider the effects of various paths of fiscal policy on the economy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0971.

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Date of creation: Aug 1982
Publication status: published as Blanchard, Olivier J. and Jeffrey Sachs. "Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model." Annales De L'Insee, Vol. 47/48 , (December 1982), pp. 117-144.
Handle: RePEc:nbr:nberwo:0971
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  1. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-692, May.
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