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Über dieses Buch

This thesis was stimulated throughout the time of my participation in a research project on Dynamic Macroeconomics, supported by the German Research Foundation (DFG). The starting point was the central question of how to integrate price setting firms in a dynamic disequilibrium model. Almost all recent literature on imperfect competition in macroeconomics applies the objective demand approach by assuming that firms know the true demand curve they are faced with. While this approach can be ap­ plied in temporary monetary equilibrium models, it proves inadequate for formulating price adjustment in a dynamic disequilibrium model, where it has to be replaced by the concept of subjective demand. Based on this distinction, the thesis starts out with a comparison of the concepts of subjective and objective demand in an abstract framework and surveys the literature on general equilibrium theory with imperfect competition. The objective demand approach is criticized not only on the grounds of its strong rationality requirements and existence problems, but also by the observation that it cannot be applied successfully to characterize determinate rational expectations equilibria in intertemporal macroeco­ nomics. Finally, price setting firms using subjective demand functions are integrated in a dynamic disequilibrium model in order to study mo­ nopolistic and oligopolistic price adjustment.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
Nowadays almost all of macroeconomic theory is based on microeconomic foundations. It is the widespread opinion that a full understanding and explanation of macroeconomic phenomena like inflation, unemployment, growth, and the business cycle require a model in which economic decision units and their interaction are described explicitly. Only models with a microeconomic foundation are immune to criticism concerning “ad hoc”— assumptions of macroeconomic relationships, and only these models allow an assessment of welfare effects of policy measures.
Leo Kaas

Chapter 2. Subjective and objective equilibria

Abstract
In this chapter a basic framework will be introduced which is sufficiently general to include all models of imperfect competition to be presented in subsequent chapters. It is the intention to formulate equilibria in such models as stationary states of a certain dynamic process and to discuss features of these equilibria.
Leo Kaas

Chapter 3. General equilibrium with imperfect competition

Abstract
It is the purpose of this chapter to present several models of general equilibrium with imperfect competition and to show how they fit into the framework of Chapter 2. All of these models are static in the sense that all trade, consumption and production decisions take place at one stage, i.e. time has no meaning in these models. Nevertheless, the purpose is to give the various equilibrium concepts a dynamic interpretation, as it is possible to understand a perfectly competitive equilibrium as stationary solution of tâtonnement processes. In a similar spirit, in this chapter specific dynamic systems with strategic interactions and a fictitious time structure will be specified in order to provide (pseudo-)dynamic foundations of different equilibrium concepts with imperfect competition.
Leo Kaas

Chapter 4. Intertemporal macroeconomic equilibrium

Abstract
Macroeconomic models with imperfect competition have been investigated intensively over the past two decades. Most of these models abstract from aggregation issues and consider representative agent economies with three types of goods: labor, a consumption good, and fiat money. In contrast to some models which incorporate money by including end-of-period balances as an argument in the utility function, this chapter follows the temporary monetary equilibrium approach, as introduced by Hicks (1946) and Patinkin (1956) and developed in full rigor by Grandmont (1983). In this framework, a store of value motive of money is derived from an explicit modeling of intertemporal decision making and of future price expectations.
Leo Kaas

Chapte 5. A dynamic macroeconomic model with price setting firms

Abstract
The perfectly rational approach of the previous chapter (firms know the objective demand curve and households make perfect price forecasts) turned out not to determine unique intertemporal equilibria. To select among such equilibria by learning, it is not very promising to maintain the assumption of a temporary objective equilibrium in each period, and thereby to suppose perfectly rational firms. This is for two reasons. First, as shown in 4.3.4, there is a continuum of stationary equilibria and it depends crucially on the learning process of price expectations which equilibrium is attained. Thus, “learning” cannot be expected to provide a true selection of equilibria. Second, temporary objective equilibria may not exist, even if the usual assumptions on preferences, technologies and expectation functions are imposed which are sufficient for existence of temporary competitive equilibria. Thus, a globally defined dynamics cannot be expected to exist, and even if it exist, it need not be computable.
Leo Kaas

Chapter 6. Final remarks

Abstract
In this thesis, I have examined different approaches to dynamic macroeconomic theory with imperfect competition. The general framework introduced in Chapter 2 allows a characterization of different equilibrium concepts as stationary states of a dynamic process. It has been argued that the objective demand approach to dynamic macroeconomics must be questioned for the following reasons:
First, as discussed in Chapters 2 and 3, the objective demand approach does not appear to be the appropriate concept of a short-run equilibrium, since the existence depends crucially on the specifications of the economy. Furthermore, even if objective equilibria exist, they are not more plausible limit outcomes of an adjustment process than other subjective equilibria. In some cases objective demand expectations may actually be more unrealistic than subjective ones.
Second, even if an objective equilibrium was preferred as the appropriate short-run equilibrium concept, it has been shown in Chapter 4 that this approach would not be able to characterize unique long-run (stationary) equilibria. That is, intertemporal equilibria, in which all agents have rational expectations and in which all imperfect competitors maximize against their objective demand curve, are completely indeterminate.
Leo Kaas

Backmatter

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