A New Model of Economic Fluctuations and Growth

Masanao Aoki and Hiroshi Yoshikawa
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Hiroshi Yoshikawa: Faculty of Economics, University of Tokyo

No CIRJE-F-136, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper presents a model of the dconomy with many sectors which face demand (quantity) constraints. Depending on the sign of the sectoral excess demand, the size of each sector either increases or decreases stochastically. We assume that reallocation of resources is not instantaneous, and, therefore, that sectoral differences in productivity always exist. We rely on the notion of holding time of continuous time Markov chains to select the sector which changes its size. We demonstrate that the total output fluctuates, and more importantly, that the level of the aggregate economic activity depends on the pattern of demand; The greater is demand for high productivity sectors, the higher is the expected value of GDP.

Pages: 33 pages
Date: 2001-10
New Economics Papers: this item is included in nep-dev, nep-ent and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2001cf136

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