Inter-Regional Factor Allocation in the Neo-Keynesian Macroeconomic Model

Hannu Laurila
Additional contact information
Hannu Laurila: School of Management, University of Tampere

No 756, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: The standard neoclassical Two-Sector Model of inter-regional factor allocation says that apositive demand shock in one region starts immigration of both labour and capital, but that thea djustment of market prices eventually reproduces the inter-regional equilibrium. In the Neo-Keynesian macroeconomic framework of this paper, however, both the initial effects of the demand shock and the adjustment path to the new equilibrium are different. Under Perfect Foresight or under Rational Expectations the factors do not move at all, but under Adaptive Expectations the factors are induced to move in the short run. However, the factors move in opposite directions: a positive demand shock causes capital to immigrate and labour to emigrate. Inter-regional factor migration is an alternative to the intra-regional adaptation of people’s expectations, which is the original rationale of the Adaptive Expectations Hypothesis.

Keywords: adaptive expectations hypothesis (AEH); factor migration; spatial resource allocation (search for similar items in EconPapers)
JEL-codes: F41 R23 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2007-08
References: Add references at CitEc
Citations:

Downloads: (external link)
http://urn.fi/urn:isbn:978-951-44-70-41-7 First version, 2007 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0756

Access Statistics for this paper

More papers in Working Papers from Tampere University, Faculty of Management and Business, Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sami Remes ().