Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model

Federico Bassi

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Abstract: In standard new consensus macroeconomics models, the impact of shocks disappears until the economy reaches a time-independent steady-state equilibrium. Introducing sunk costs and capital indivisibilities in capacity adjustment decisions implies the rejection of asymptotic stability and a reconsideration of the relevance and usefulness of traditional steady-state analysis based on a fixed and exogenous ‘center of gravity'. Moreover, effective demand and Keynesian discretionary policies regain a central role in economic policy by determining the transient equilibriums that emerge endogenously

Keywords: Path-dependence; Hysteresis; Potential output; Monetary policy (search for similar items in EconPapers)
Date: 2016-09-01
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Published in Review of Political Economy, 2016

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01406476

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