General equilibrium and the new neoclassical synthesis

P. Jean-Jacques Herings

Economic Theory, 2014, vol. 57, issue 3, 437-477

Abstract: We present a general equilibrium model of the new neoclassical synthesis that has the same level of generality as the Arrow–Debreu model. This involves a stochastic multi-period economy with a monetary sector and sticky commodity prices. We formulate the notion of a sticky price equilibrium where all agents form rational expectations on prices for commodities and assets, interest rates, and rationing. We present a general result showing that monetary policy imposes no restrictions whatsoever on nominal equilibrium price levels and that the set of sticky price equilibria has a dimension equal to the number of terminal date-events. Stickiness of prices implies that this indeterminacy is real. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: General equilibrium; Monetary policy; Sticky prices; New neoclassical synthesis; Indeterminacy; D50; D90; E40; E50 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Working Paper: General equilibrium and the new neoclassical synthesis (2012)
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DOI: 10.1007/s00199-014-0830-2

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