A Note on NNS Models: Introducing Physical Capital; Avoiding Rationing

Jean-Pierre Danthine () and John B Donaldson

No 3351, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This note makes two comments on recent NNS models. First, it disputes the way physical capital has been introduced into these models, arguing that this leads to the dubious postulate that the cost of adjusting physical capital stock is an order of magnitude lower than the cost of changing prices. Second, it warns against a possible logical inconsistency whereby calibrated NNS models are implicitly assuming that some (price-constrained) firms are willing and able to sell their output below cost.

Keywords: cost-of-adjusting capital; new neo-classical synthesis; sticky prices (search for similar items in EconPapers)
JEL-codes: E30 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2002-04
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