A New Model of Economic Fluctuations and Growth
This paper presents a model of the dconomy with many sectors which face demand (quantity) constraints. Depending on the sign of the sectoral excess demand, the size of each sector either increases or decreases stochastically. We assume that reallocation of resources is not instantaneous, and, therefore, that sectoral differences in productivity always exist. We rely on the notion of holding time of continuous time Markov chains to select the sector which changes its size. We demonstrate that the total output fluctuates, and more importantly, that the level of the aggregate economic activity depends on the pattern of demand; The greater is demand for high productivity sectors, the higher is the expected value of GDP.
|Date of creation:||Oct 2001|
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