Keynesian Equilibrium and Fix Price Equilibria

Philippe Michel

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The recent development of macroeconomic models with fixed prices has shown the importance of considering the type of unemployment in the economy, since this determines the effects of economic policy decisions. These models differ from the Keynesian approach by the hypothesis of rigidity of all prices, by the fact that equilibrium results from a tatonnement on quantities, and by the behaviour of firms whose role is as passive as that of households : firms and households are symmetrically treated. The most active role is that of the auctioneer who instead of adjusting prices, adjusts quantities. Keynesian equilibrium is defined by "Aggregated Demand and Aggregate Supply Functions" and given an aggregate production function, it corresponds to a determined price level. But given fixed prices, there is generally no equality between production and aggregate supply and demand. I try to restore the non-symmetrical Keynesian view and I study the formation and the type of equilibrium expected by firms facing constraints which arise from aggregate demand and from aggregate supply when prices are fixed. The existence and uniqueness of such an equilibrium is guaranteed without convesity. And when the expectations of firms are exact (when they coincide with the effective demand for goods and the effective supply of labour by households), the expected equilibrium is a fixed price equilibrium in the usual sense, i.e. the asymmetrical approach gives the same result as the symmetrical one.

Pages: 13 pages
Date: 1980
References: Add references at CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... 78-1988/twerp164.pdf

Related works:
Working Paper: KEYNESIAN EQUILIBRIUM AND FIX-PRICE EQUILIBRIA (1980)
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:wrk:warwec:164

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().