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Play-Hysteresis in Supply as Part of a Market Model

  • Göcke, Matthias
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    Consequences of path-dependent supply side hysteresis on the market equilibrium are illustrated. Supply is only a subsystem of the entire market with its forcing variable (price) being endogenous from the perspective of the entire market. This results in feedbacks on the equilibrium of price and quantity if transient exogenous disturbances occur. Aggregate hysteresis is modelled by continuous dynamics showing similarities to mechanical play . This contrast the standard firm level modelling of hysteresis resulting from discontinuous activity/inactivity switches. Non-linear play-dynamics are captured in a simple linearized way, just by adding two parameters to a supply equation.

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    File URL: http://econstor.eu/bitstream/10419/79695/1/VfS_2013_pid_377.pdf
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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79695.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:79695
    Contact details of provider: Web page: http://www.socialpolitik.org/
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    1. Ansgar Belke & Matthias Göcke & Martin Günther, 2012. "Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports: Sectoral Evidence for Some OECD Destinations," Discussion Papers of DIW Berlin 1203, DIW Berlin, German Institute for Economic Research.
    2. Cross, Rod, 1993. "On the Foundations of Hysteresis in Economic Systems," Economics and Philosophy, Cambridge University Press, vol. 9(01), pages 53-74, April.
    3. Piscitelli, Laura, et al, 2000. "A Test for Strong Hysteresis," Computational Economics, Society for Computational Economics, vol. 15(1-2), pages 59-78, April.
    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. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
    6. Belke, Ansgar & Göcke, Matthias, 2004. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," IZA Discussion Papers 1126, Institute for the Study of Labor (IZA).
    7. Ljungqvist, Lars, 1994. "Hysteresis in international trade: a general equilibrium analysis," Journal of International Money and Finance, Elsevier, vol. 13(4), pages 387-399, August.
    8. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September.
    9. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
    10. Delgado, Francisco A., 1991. "Hysteresis, menu costs, and pricing with random exchange rates," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 461-484, December.
    11. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November.
    12. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
    13. Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc.
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