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- Title
AN OVERLOOKED SCENARIO OF "RESWITCHING" IN THE AUSTRIAN STRUCTURE OF PRODUCTION.
- Authors
GRANOT, ER'EL
- Abstract
Since Samuelson's (1966) reswitching example in the 1960s, it became clear that the Average Production Period (APP) is not necessarily a decreasing function of the interest rate. Recently, Fillieule (2007) and Hülsmann (2010) have shown that Samuelson's example is not a mere curiosity. They showed that in a reasonable production structure model, the length of production increases with the interest rate instead of decreasing. However, their model did not present "reswitching" behavior. In this paper a generic model of the structure of production, in which both Fillieule's and Hülsmann's models are specific cases, is presented. It shows that the APP has a nonmonotonic dependence on the interest rate, which resembles a "reswitching" behavior: it increases for low-interest rates up to a maximum value, and then decreases back to almost the initial value. The decrease occurs within a relatively narrow range of interest rates, which may explain why it was missed in the literature.
- Subjects
INTEREST rates; PRODUCTION increases; STORY plots
- Publication
Quarterly Journal of Austrian Economics, 2019, Vol 22, Issue 4, p509
- ISSN
1098-3708
- Publication type
Article