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The Right Combination of Demand and Supply Policies: The Case for a Two-Handed Approach

  • Willem H. Buiter

The paper considers the analytical underpinnings of the scope for and limits of demand and supply management. After restating a general policy effectiveness result for New-Classical macroeconomic models, several non-Walrasan equilibrium models are considered. These use the efficiency wage hypothesis to generate equilibrium unemployment in the labor market and imperfect competition in the goods market to generate scope for demand management. Hysteresis models of the natural rate are also reviewed briefly. Tentative implications are drawn for the contributions of demand and supply management to the resolution of the European unemployment problem.

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File URL: http://www.nber.org/papers/w2333.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2333.

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Date of creation: Aug 1987
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Publication status: published as Buiter, "The Right Combination of Demand and Supply Policies: The Case for a Two-Handed Approach," in Macro and Micro Policies for More Growth and Employment," ed. by H. Muller-Groeling, Kiel, West Germany: Kiel Institute of World Economics, 1988.
Handle: RePEc:nbr:nberwo:2333
Note: ME
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  1. 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.
  2. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  3. Gregory, R G, 1986. "Wages Policy and Unemployment in Australia," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S53-74, Supplemen.
  4. McCallum, Bennett T, 1980. "Rational Expectations and Macroeconomic Stabilization Policy: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 716-46, November.
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  8. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
  9. Blinder, Alan S, 1987. "Credit Rationing and Effective Supply Failures," Economic Journal, Royal Economic Society, vol. 97(386), pages 327-52, June.
  10. Barro, Robert J., 1981. "Intertemporal substitution and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 14(1), pages 237-268, January.
  11. McCallum, Bennett T, 1977. "Price-Level Stickiness and the Feasibility of Monetary Stabilization Policy with Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 627-34, June.
  12. Buiter, Willem H & Jewitt, Ian, 1981. "Staggered Wage Setting with Real Wage Relativities: Variations on a Theme of Taylor," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(3), pages 211-28, September.
  13. King, Robert G., 1983. "Interest rates, aggregate information, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(2), pages 199-234.
  14. Willem H. Buiter & Mark Gersovitz, 1981. "Issues in Controllability and the Theory of Economic Policy," NBER Technical Working Papers 0002, National Bureau of Economic Research, Inc.
  15. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  16. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
  17. Marini, Giancarlo, 1985. "Intertemporal Substitution and the Role of Monetary Policy," Economic Journal, Royal Economic Society, vol. 95(377), pages 87-100, March.
  18. Gregory, R G, 1982. "Work and Welfare in the Years Ahead," Australian Economic Papers, Wiley Blackwell, vol. 21(39), pages 219-43, December.
  19. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
  20. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  21. Hargreaves Heap, S P, 1980. "Choosing the Wrong 'Natural' Rate: Accelerating Inflation or Decelerating Employment and Growth?," Economic Journal, Royal Economic Society, vol. 90(359), pages 611-20, September.
  22. Willem H. Buiter & Marcus H. Miller, 1983. "Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues," NBER Working Papers 1252, National Bureau of Economic Research, Inc.
  23. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc.
  24. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
  25. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  26. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  27. Marini, Giancarlo, 1986. "Employment Fluctuations and Demand Management," Economica, London School of Economics and Political Science, vol. 53(210), pages 209-18, May.
  28. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
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