Download Dynamic Factor Demand in a Rationing Context: Theory and by Werner Smolny PDF

By Werner Smolny

A macroeconomic disequilibrium version is constructed for the Federal Republic of Germany. beginning with a microeconomic version of firm's behaviour, the optimum dynamic adjustment of employment and funding is derived. The version of the enterprise is complemented through an explicite aggregation approach which permits to derive macroeconomic family members. The version is expected with macroeconomic information for the Federal Republic of Germany. an enormous function is the constant advent of dynamic adjustment right into a version of the company. a brand new strategy is the actual procedure of a not on time adjustment of employment and funding. The estimation effects convey major underutilizations of labour and capital and point out the significance of offer constraints for imports and exports. because the so much sought after consequence, they display the significance of the gradual adjustment of employment and funding for the macroeconomic scenario in Germany and particularly for the patience of excessive unemployment within the eighties.

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Additional info for Dynamic Factor Demand in a Rationing Context: Theory and Estimation of a Macroeconomic Disequilibrium Model for the Federal Republic of Germany

Example text

Labour demand depends on the real wage or the demand for the firm's products. Now output and employment follow for appropriately defined micro-markets from: Ij = min( 1;, If) . Yj' = . (Yj" ' Yj'd) j': 1, ... 7) j: 1, ... 11) 116Thi. requires equal wages and prices on the market. Allowing for price differentiation i. in conflict with the homogeneity a&8umption within the market and can be ruled out by an appropriate definition of micrG-markets. Also, spillovers within the goods or labour market are omitted for convenience.

106 II is the labour market equilibrium with labour supply depending not only on real wages, but also on the absolute level of wages and prices due to real balance effects. The firms' labour demand depends only on the real wage. Employment is increasing along the curve up to Wand then decreasing. Similarily for the goods market: yy is the equality of supply and demand with demand increasing with the real wage but also negative real balance effects of a higher price level. Goods supply depends only on the real wage.

See also Solow (1988). e. /. is proportional to x. g. Rothschild (1971), Nickell (1978) and Hamennesh (1989, 1990). Hamennesh found evidence of those costs by using firm level data. 4. DYNAMIC FACTOR DEMAND 43 overstated. Further, while concave and convex adjustment costs imply different results on the firm level, the behaviour of aggregate adjustment is quite similar. For aggregate investment it hardly makes a difference whether all firms adjust partially or some firms adjust completely and other firms do not adjust at all.

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