The AD-AS Model and Its Solutions: Some New Results in a Disequilibrium Perspective

Alessandra Chirco () and Caterina Colombo ()

Australian Economic Papers, 1996, vol. 35, issue 67, 263-81

Abstract: This paper discusses the logical foundation and the solutions of a microfounded aggregate demand - aggregate supply model under the disequilibrium hypothesis. We first show that a) the latter hypothesis is the only one ensuring model consistent expectations and that b) price predetermination, more than price flexibility, should be embodied in an AD-AS framework. Then we develop a full AD-AS scheme, both under excess supply and excess demand for labor. We prove that in the latter case no well defined equilibrium exists. Finally, we discuss stability and perform some comparative statics exercises. Copyright 1996 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Date: 1996
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