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- Title
General equilibrium and the new neoclassical synthesis.
- Authors
Herings, P.
- Abstract
We present a general equilibrium model of the new neoclassical synthesis that has the same level of generality as the Arrow-Debreu model. This involves a stochastic multi-period economy with a monetary sector and sticky commodity prices. We formulate the notion of a sticky price equilibrium where all agents form rational expectations on prices for commodities and assets, interest rates, and rationing. We present a general result showing that monetary policy imposes no restrictions whatsoever on nominal equilibrium price levels and that the set of sticky price equilibria has a dimension equal to the number of terminal date-events. Stickiness of prices implies that this indeterminacy is real.
- Subjects
ECONOMIC equilibrium; NEOCLASSICAL school of economics; STOCHASTIC processes; COMMERCIAL products; MONETARY policy
- Publication
Economic Theory, 2014, Vol 57, Issue 3, p437
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-014-0830-2