Abstract
A simple piecewise linear macroeconomic model with buffer stock inventories is formulated and analyzed in this paper. Buffer stocks partly eliminate rationing of the demand for goods, since rationing appears only when a stock-out is possible. This means that the region of classical unemployment necessarily shrinks and will even disappear when buffer stocks absorb all the randomness of the aggregate demand for goods. Inventory dynamics with constant wages and prices have steady states either in the region of Keynesian unemployment or repressed inflation. In the former case the motion is oscillatory and either converges or ends in a limit cycle, while in the latter it is monotonic. Some of the complications caused by flexible wages and prices are sketched, but the results depend heavily on the nature of wage and price adjustments.
We are indebted to Jerry Green for helpful comments.
A grant from the Finnish Cultural Foundation is gratefully acknowledged.
The author is grateful to financial support from NSF Grant SOC 78–06162.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Arrow, K. J.: Historical background. In Studies in the mathematical theory of inventory and production. (Ed. K. J. Arrow, S. Karlin and H. Scarf) Stanford University Press, 1958.
Barro, R. J. & Grossman H. I.: Money, employment and inflation. Cambridge University Press, 1976.
Benassy, J. P.: Neo-Keynesian disequilibrium theory in a monetary economy. Review of Economic Studies 42, 503–524, 1975.
Böhm, V.: Disequilibrium dynamics in a simple macroeconomic model. Journal of Economic Theory 17, 179–199, 1978.
Feldstein, M. & Auerbach, A.: Inventory behavior in durable-goods manufacturing: The target-adjustment model. Brookings Papers on Economic Activity, pp. 351–396, 1976.
Gale, Douglas: Large economies with trading uncertainty. Review of Economic Studies 46, 319–338, 1979.
Green, J. R.: On the theory of effective demand. H.I.E.R. Discussion Paper No. 601, Harvard University, January 1978; forthcoming in Economic Journal.
Green, J. R. & Laffont, J.-J.: Disequilibrium dynamics with inventories and anticipatory price-setting. Unpublished manuscript, Harvard University, 1979.
Honkapohja, S.: On the dynamics of disequilibria in a macro model with flexible wages and prices. In New trends in dynamic system theory and economics (ed. M. Aoki and A. Marzollo). Academic Press, 1979a.
Honkapohja, S.: The employment multiplier after disequilibrium dynamics. The Scandinavian Journal of Economics 82, 1–14, 1980.
Honkapohja, S. & Ito, T.: Non-trivial equilibrium in an economy with stochastic rationing. National Bureau of Economic Research, Working Paper 322, 1979a.
Honkapohja, S. & Ito, T.: A stochastic approach to disequilibrium macroeconomics. H.I.E.R. Discussion Paper No. 719, Harvard University, 1979 b.
Ito, T.: A note on disequilibrium growth theory, Economics Letters 1, 45–49, 1978.
Ito, T.: Disequilibrium growth theory. Center for Economic Research, University of Minnesota, Discussion Paper No. 79–113, September, 1979; forthcoming in the Journal of Economic Theory.
Lovell, M. C.: Buffer stocks, sales expectations, and stability: a multi-sector analysis of the inventory cycle. Econometrica 30, 267–296, 1962.
Malinvaud, E.: The theory of unemployment reconsidered. Basil-Blackwell Publisher, 1977.
Metzler, L.: The nature and stability of inventory cycles. Review of Economics and Statistics 23, 113–129, 1941.
Muellbauer, J. & Portes, R.: Macroeconomic models with quantity rationing. Economic Journal 83, 188–821, 1978.
Svensson, L. E. O.: Effective demand and stochastic rationing. Review of Economic Studies 47, 339–355, 1980.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 1981 The Scandinavian Journal of Economics
About this chapter
Cite this chapter
Honkapohja, S., Ito, T. (1981). Inventory Dynamics in a Simple Disequilibrium Macroeconomic Model. In: Matthiessen, L., Strøm, S. (eds) Unemployment. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-05966-9_5
Download citation
DOI: https://doi.org/10.1007/978-1-349-05966-9_5
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-05968-3
Online ISBN: 978-1-349-05966-9
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)