Disequilibrium Models and the Use of Business Survey Data

Abstract

Considerable work has been done in recent years on constructing macroeconometric disequilibrium models. The characteristic feature of these models is that prices and wages are not assumed to clear markets instantaneously so that some agents (those on the “long” side of a market) may get rationed. Rationing in turn entails revisions of trade plans, causing so-called spill-over effects across markets. In an aggregate two-market setting, the economy can be located in four possible regimes, which are endogenously determined by the model. The regime of ‘Keynesian unemployment’ is characterized by excess supply for both labor and goods; it closely replicates the traditional IS-LM analysis with the corresponding policy implications. In the other regimes - ‘classical unemployment’, ‘repressed inflation’ and ‘underconsumption’ - the economy behaves differently and other policy measures are implied.