Abstract
The neoclassical heart of MM consists of the twelve behavioural identities 115–126. These are referred to in this book as the enterprise production block of the business sector. They concern input and output decisions by business enterprises.
This is a preview of subscription content, log in via an institution to check access.
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
Government-owned trading enterprises are assumed throughout to behave in the same way as private agents.
Murphy (1992a) adopts the contrary convention for the elasticity of transformation (which in his notation is positive). However he follows the convention used here in which substitution elasticities are positive.
3 See (5.6.10) in Ch. 5 above in which the long-run unemployment rate is shown to be completely determined by the parameters and a3.
This marginal cost itself is a dynamic variable whose trajectory may be disturbed by the shock.
Notice that the use of the convergence criterion approach for the definition of length of run involves the following ambiguities: (a) the length of the medium or the long run may vary according to which variable/s is/are shocked, and by how much; (b) it usually will also vary with the strictness of the approximation required for effective reestablishment of equilibrium.
This exposition differs slightly from Murphy (1992b, p. II—16 and ff.) in that the equilibrium values of some of the variables left implicit by him are explicitly discussed here.
With zero pure profits in the neoclassical equilibrium, price = unit cost.
The non-linear eight-equation system responsible for endogenizing these variables consists of the following equations (developed below): (10.4.1) [123], (10.4.3) [I20], (10.4.4a) [I10] (10.4.8) [119], (10.4.11) [I211, (10.4.20) [122], (10.4.22) [125] and (10.4.23) [124].
In the interests of avoiding notational clutter, here and in the remainder of section 10.4(b), the affix MR, indicating the medium-run value of an endogenous variable, is appended to the relevant symbol only in the statement of behavioural identities that actually appear in MM. These may be identified by the presence of an original MM equation number appearing in bold type in square parentheses on the right.
Murphy (1992a), p. II—16 (04/05/92).
Note that the trends in A3 and A5 operate within sample only.
Morr recent estimates of the capital-labour substitution elasticity put a1 at 0.755, with a It I value of 19.2 (see Taplin and Parameswaran, 1993, p. 20).
A qualification is necessary here. Because MM exhibits cyclical behaviour, variables rarely approach their long run values monotonically. Thus it is possible for a variable R such as rB to pass temporarily through its long-run equilibrium on its trajectory towards that long-run equilibrium. To define MM’s long run we require the additional LR condition that the rate of return r A, LRB shows no further tendency to change.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 1995 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Powell, A.A., Murphy, C.W. (1995). The Enterprise Production Block of the Business Sector. In: Inside a Modern Macroeconometric Model. Lecture Notes in Economics and Mathematical Systems, vol 428. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-00771-6_10
Download citation
DOI: https://doi.org/10.1007/978-3-662-00771-6_10
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-60027-5
Online ISBN: 978-3-662-00771-6
eBook Packages: Springer Book Archive