Download Advanced Lectures in Quantitative Economics by Frederick van Der Ploeg PDF

By Frederick van Der Ploeg

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By Frederick van Der Ploeg

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Additional info for Advanced Lectures in Quantitative Economics

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As such, it moves the model in the direction of greater realism and allows a much richer range of questions to be examined. 21 Notional Equilibria This model may be analysed in a number of alternative ways. To begin with, it is convenient to illustrate the different regimes in the space of the wage rate and the price of the non-traded good, denoted by q. 5) is adopted is that monetary changes in the presence of excess demand for labour have a 'supply multiplier' of the kind discussed by Barro and Grossman (1974).

Patinkin, 1965, p. ) Of course, point B lies on the effective labour demand curve, which is simply the vertical line EBF. _ y yo Figure 10. Classical versus Keynesian unemployment. 36 Peter Neary Small changes in the real wage will now have no supply-side effect on employment; indeed, a cut in the nominal wage could even lower unemployment. 32 Clearly, an exogenous demand expansion will raise employment and output so the adjective 'Keynesian' is appropriate for this type of unemployment. 33 So far, Figure 10 has served to illustrate the different properties of the two types of unemployment.

However, Moene (1987) has shown that the model's predictions are sensitive to this assumption. Neary (1980) explores the consequences of assuming instead that one or other of the two sectors is given priority in the allocation of the labour force. 32 Peter Neary ΝΝ' q Figure 9. Effective non-traded good market equilibrium loci. This is represented by the vertical straight line labelled ΝΝ' in Figure 9. While the derivation of the effective equilibrium loci is clearly more complicated as a result of the failure of the labour market to clear by wage adjustment, the properties of the model are not very different from those in the sticky-wage case with no non-traded good.

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