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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. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
  3. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  4. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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  7. Marini, Giancarlo, 1986. "Employment Fluctuations and Demand Management," Economica, London School of Economics and Political Science, vol. 53(210), pages 209-18, May.
  8. Ball, Laurence & Romer, David, 1989. "Are Prices Too Sticky?," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 507-24, August.
  9. 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.
  10. 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.
  11. 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.
  12. Marini, Giancarlo, 1985. "Intertemporal Substitution and the Role of Monetary Policy," Economic Journal, Royal Economic Society, vol. 95(377), pages 87-100, March.
  13. 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.
  14. Robert J. Barro, 1980. "Intertemporal Substitution and the Business Cycle," NBER Working Papers 0490, National Bureau of Economic Research, Inc.
  15. 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.
  16. 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.
  17. Alan S. Blinder, 1985. "Credit Rationing and Effective Supply Failures," NBER Working Papers 1619, National Bureau of Economic Research, Inc.
  18. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
  19. Buiter, Willem H. & Gersovitz, Mark, 1981. "Issues in controllability and the theory of economic policy," Journal of Public Economics, Elsevier, vol. 15(1), pages 33-43, February.
  20. 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.
  21. 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.
  22. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
  23. 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.
  24. Gregory, R G, 1982. "Work and Welfare in the Years Ahead," Australian Economic Papers, Wiley Blackwell, vol. 21(39), pages 219-43, December.
  25. 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.
  26. 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.
  27. King, Robert G., 1983. "Interest rates, aggregate information, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(2), pages 199-234.
  28. 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.
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