Temporary Equilibrium Research Articles

TEMPORARY EQUILIBRIUM EXPECTATIONS AND NOTIONAL SPILLOVERS*

Scottish Journal of Political EconomyVolume 29, Issue 2 p. 181-191 TEMPORARY EQUILIBRIUM EXPECTATIONS AND NOTIONAL SPILLOVERS* Christopher J. Ellis, Christopher J. Ellis University of LancasterSearch for more papers by this author Christopher J. Ellis, Christopher J. Ellis University of LancasterSearch for more papers by this author First published: June 1982 https://doi.org/10.1111/j.1467-9485.1982.tb00446.x † *I wish to express my gratitude to Avinash Dixit and Paul Stoneman for supervising and encouraging the postgraduate work from which this paper is derived. I thank Phillipe Michel for pointing out some errors in an earlier version, naturally any that remain are entirely the fault of the aouthor AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume29, Issue2June 1982Pages 181-191 RelatedInformation

Rational expectations and the Markov property of temporary equilibrium processes

The note gives an example of a sequence economy, in which (i) every sequence of selections of the temporary equilibrium correspondences determines a Markov process and (ii) the unique rational expectations equilibrium process is not Markov.

New techniques for the study of stochastic equilibrium processes

This paper develops the notion of transition correspondences; the set-valued analog of transition probabilities. A generalization of the Feller property for transition probabilities is shown to imply the existence of a selection from the transition correspondence having a stationary equilibrium. These techniques are applied to the existence problem for Markov temporary equilibrium processes in place of assumptions about the existence of continuous selections from the equilibrium price correspondence.

Behavioral rules, inventory adjustments and the stability of macroequilibria

This paper extends the static analysis of Nikaido (1974) and the temporary equilibrium analysis of Day-Fan (1980) to a full disequilibrium analysis by introducing inventories explicitly into the Keynes-Kaldor-Nakaido framework. Two different inventory adjustment processes are considered. The first is based on the micro behavioral assumption that each producer coordinates his safes, production and inventory departments so that inventories can be adjusted to the desired level through intra-firm shipments. The second follows the traditional approach of treating inventories as part of investment demand. Coupled with the two behavioral rules of price-output determination, namely full-cost pricing and perceived profit maximization four models are generated. These models are studied for their dynamic behaviors in disequilibrium. It is found that the adjustment trajectories of both the full-cost pricing and perceived profit maximization models with intra-firm inventory adjustments exhibit damped cycles, whereas those of both models with inventories treated as investment demand are inherently unstable.

Credit Rationing in a General Equilibrium Model

Tobin and Brainard have developed a series of models of the financial sector in which income, expectations and the stocks of certain assets are exogenously given, and in which asset markets are assumed to be in equilibrium (Tobin and Brainard, 1963; Brainard, 1967; Tobin, 1969). These models can be used to analyse the effects of changes in the exogenous variables on asset prices and interest rates. Their results may be regarded as exploring the vertical displacements of the LM curve which result from monetary actions (Brainard, 1967, p. 99). By assuming that financial markets adjust virtually instantaneously, such results describe the very short-run, or impact, effects of policy actions: the analysis is of a temporary equilibrium established after a policy change, and before output or expectations respond. This very short run is exactly the situation where credit rationing would be expected, for while the prices of financial assets can be assumed to respond immediately to any discrepancy between demand and supply, the same cannot be said of the lending and borrowing rates offered by financial institutions. If, for example, the rate of interest on bank loans does not rise immediately in response to a contractionary monetary policy, there will be excess demand for loans and credit rationing. When it comes to analysing credit rationing, partial equilibrium analysis using supply and demand curves for loans can be used to draw two main conclusions (see Chick, 1973, pp. 62-67): that raising the loan rate will increase the supply of loans and thus be expansionary; and that a restrictive monetary policy will have a greater impact if loan rates are sticky, shifts in the supply curve not being offset by movements along it. Two problems arise with such partial equilibrium analysis: the supply curve may be inappropriate given that the supply of loans depends not only on bank behaviour but also on the public's preferences; and the relationship between the volume of lending, the loan rate and aggregate demand is not clear, for with rationing lending is restricted but the cost of loans for those who have them is lower than in the absence of rationing. Both problems can be circumvented by considering credit rationing in the context of a Tobin-Brainard type of general equilibrium model. This paper is concerned with formulating such a model and using it to answer the following questions: (a) if there is rationing, will raising the loan rate be expansionary or contractionary? (b) will open-market operations be more or less effective if the loan rate is sticky? and (c) what effect will a sticky loan rate have on the slope of the LM curve? Of these questions the first is fundamental, for the other questions can be answered by dividing the effects of a policy change into (a) the effects of a policy change given a fixed loan rate and (b) the effects of changing the loan rate to its new equilibrium level. So the bulk of the paper is given over to discussing the first question. Subscripts on all letters other than r denote partial differentiation.

Repressed inflation in the Soviet Union: A temporary equilibrium approach

The Soviet economy is modeled by means of temporary general equilibrium theory. Three temporary equilibrium states are distinguished. In Walrasian equilibrium, all markets clear. Under repressed inflation, there is excess consumer demand for goods marketed by the state, while consumer demand is deficient in the underconsumption regime. The dynamics of these temporary equilibrium states are studied and the dynamic adjustment equations fitted to Soviet data. Simulation of the model offers an explanation for the tendency of the inventories/cash balances ratio to fall since 1965.

Asset Prices and Temporary Equilibrium with Rationing

The disequilibrium approach to modern macroeconomics, see for instance Barro & Grossman (1972) and Malinvaud (1977), has provided a much better understanding of different types of unemployment situations. Yet, at the market level, it has been a one-period analysis involving the wrong spot money wage and product price only.' On one hand, most of this literature has been presented as a reconsideration of Keynesian economics; on the other hand, Leijonhufvud (1968) has convincingly argued that a key to the understanding of typically Keynesian unemployment situations resides in the recognition that in an economy where the present is greatly affected by the perception of the future (as it relates in particular to the uncertain return on capital), it is the general level of asset prices which may often be wrong while the current money wage and product price are right. The object of this short paper is to make precise Leijonhufvud's contention by considering the sequence of temporary equilibria where the correct spot money price vector-which now includes an asset price and hence interest rate-is associated with a steady-state Walrasian equilibrium. Short-run equilibrium or disequilibrium prices are then judged with respect to this correct spot money price vector. This procedure permits an extention of the taxonomy of unemployment situations proposed by Barro and Grossman and Malinvaud, to include Leijonhufvud's case.

Quasistationary magnetization in pulsed spin-locking experiments in dipolar solids

The quasistationary magnetization in dipolar solids for pulsed spin-locking experiments is calculated. A temporary equilibrium after several pulses is assumed to develop under a Hamiltonian obtained with average Hamiltonian theory from the terms for the rf field and the dipolar interaction. The effect of finite pulse width is discussed. Experimental data from a Ca${\mathrm{F}}_{2}$ sample support the theoretical results. It is shown that pulse flip angles ${\ensuremath{\varphi}}_{x}=180\ifmmode^\circ\else\textdegree\fi{}\ifmmode\pm\else\textpm\fi{}\ensuremath{\epsilon}$ have the same effect as the flip angle $\ensuremath{\epsilon}$.

Stochastic processes of temporary equilibria: A note

The existence of invariant measures for Markov processes of temporary equilibria is derived under assumptions on demand and supply functions that allow the use of Doeblin's condition. This approach does not require the existence of a continuous selection of the temporary equilibrium correspondence.

Nontraded Goods and the Balance of Trade in a Neo-Keynesian Temporary Equilibrium

This paper explores the implications for international monetary economics of recent work on macroeconomic models of temporary equilibrium with rationing. A model of a small open economy is presented, which, though fully consistent in the long run with the monetary approach to the balance of payments, behaves very differently in the short run when the wage and the price of nontradeables are sticky. Among the comparative statics properties of the model are the following: a devaluation may not improve the trade balance; a wage cut may not increase employment; and technological progress has different effects, depending on the sector in which it occurs.

The theory of temporary equilibrium and the Keynesian model

The theory of temporary equilibrium and the Keynesian model

Efficiency of temporary equilibria

A temporary equilibrium model of a production economy with various capital markets in which producers maximize the expected utility of cash flows in various periods is considered. Without restricting the price expectation of producers, it is shown that, if contracts to buy or sell goods at future periods can be trated in a market and if the producer's utility functions are increasing in the cash flow of the first period, then the temporary equilibrium allocations are technically efficient. Also, production is technically efficient even in the presence of some quantity constraints on sales of futures contracts which are sufficient for existence of an equilibrium.

Money Supply and Demand Interdependence

Supply and demand independence is the badge of microtheory: buyers and sellers inhabit separate isolation booths. Ordinarily a qualification enters for fixed stocks in Marshall's provisional temporary equilibrium (1920, book 5, ch. 2). The Reverend Wicksteed went further in collapsing supply into an inversedemand function (1934, ch. 4). Outside of this proviso, independence could safely be installed in short- and long-run models. Interdependence is the cardinal tenet in macrotheory, tracing an ancestry at least to Say's law. Later, when the Schumpeterian circular flow (1934) was conceded as punctured by either savings or modern banking and money creation, from Keynes through the modern Kalecki-Kaldor-Robinson hypothesis, money wages emerged as a two-edged saw dominating business costs and consumer demand. The dual cutting interaction has been blithely suppressed in monetarist inflation theory (Weintraub, 1978a, pp. 43, 88-89). Interdependence of money demand and supply has likewise been effectively straddled by monetarists concentrating on the realmoney demand equation while treating money supply as an exogenous variable (Friedman, 1974, p. 3 1), and by Keynesians practising a casual transplant of the money supply function while holding the given liquidity-demand curve rigid. Yet S and D interdependence may be the single most important insight to understanding the speculative motive and money market interest rate perturbations in our economy.'

Behavioral rules and sequences of macroequilibria

This paper compares the dynamic consequences of several diferent behavioral rules involving price or quantity adjustments in a temporary equilibrium, macroeconomic framework. The central rule studied is the widely practiced, cost mark-up, administered pricing rule. A competitive, quantity adjustment rule based on a target rate of return is also examined. These are contrasted with monopolistic, profit maximizing price and quantity adjusting rules. Although the analysis represents but an initial foray into the territory where the interests of behavioral and macroeconomic theories overlap, the results, which trace stagflation to instabilities in ‘permanent’, full-employment equilibrium, suggest that further work in this direction may improve our understanding of present inflationary phenomena.

Short-Selling, Default Risk and the Existence of Equilibrium in a Securities Model

In a recent paper, Hart [1974] has argued that in a securities model, which allows unlimited short-selling, an equilibrium exists as long as there is not too much disagreement about security returns. A similar result was obtained by Green [1973, 1974] for commodity short-selling in a temporary equilibrium model. These results are qulite disturbing because, as Green [1973] suggests, in a 'perfect' world witlhout collateral constraint 'imperfections', an equilibrium may not exist unless quite strong restrictions are imposed on expectations. From the most casual of observations it is clear that lenders impose considerable constraints on the portfolio decisions of borrowers. Whereas Green, and many other writers, have viewed these constraints as capital market imperfections, I will argue that such constraints arise quite naturally, as a lender's response to the possibility of default risk.2 It should be made clear that these constraints do not necessarily eliminate the possibility of default, but are constraints imposed, by lenders, to ensure that borrowers have resources sufficient to cover the risk of the loan. Green and Hart (hereafter G-H) have introduced an implicit assumption that creditors are extremely naive in their lending policies.3 G-H assume that creditors will accept securities, from a borrower, that promise payments far in excess of possible aggregate endowments for the economy in the future indeed, they assume infinite promises are possible! The point of this paper is to examine some possible constraints on portfolios that arise from lenders' perceptionls of default risk. These constraints will arise from rational decisions on the part of economic agents, where rationality will be taken to imply that borrowers willingly choose portfolios that imply future default when that claim can be issued at a price consistent with no default, but that no lender will knowingly allow a borrower to take such a position. Given this type of constraint, I will show that an equilibrium exists in an asset economy. The plan of this paper is as follows: Section 1 outlines a simple security

On the Predictability of Economic Events

Events by Grunberg and Modigliani [3]. Economic forecasts are made to be used, and decisions based on them may affect their ultimate realization. Grunberg and Modigliani explored this problem in a model in which future aggregate supply was influenced by current decisions based on the predicted future price. They applied the Brouwer fixed point theorem to show that if the future equilibrium price is a bounded continuous function of its currently predicted value, a exists. In [8] this result was placed in a temporary equilibrium context and the notation of a correct prediction was extended to include probabilistic predictions based on estimation procedures. Again, a fixed point theorem was applied to show that the causal influence of a forecast does not always invalidate it. Although this result is a reassuring and necessary first step, the analysis is confined to a single realization of the exogeneous variables. Thus a forecast is a single point or probability distribution rather than a function or conditional distribution whose domain is the space of observable variables. Of course, if the complete exogenous specification of the economy is observable, this is no restriction since the theorems could be applied separately to each realization. However, it is more likely that the space of observable variables contains a mixture of exogenous and endogenous variables without containing the complete set of either. Then if the exogenous variables are generated stochastically, the results of the above mentioned papers do not guarantee the existence of a statistically forecasting procedure. What is needed are general equilibrium versions of the results in [10], where, in particular, the statistically forecast of a future price is derived as a function of current and past prices. It would seem natural to approach this as a fixed point problem in the space of joint distributions of the observable variables and the

Keynesian multipliers in temporary equilibrium with consumer credit rationing

Keynesian multipliers in temporary equilibrium with consumer credit rationing

Far infrared spectroscopic studies of acetonitrile and other polar molecules in liquid phase

A composite absorption band with a maximum below 100 cm−1 is observed for polar non-hydrogen bonding molecules in the pure liquid and in binary mixtures with CCl4. In the case of acetonitrile it consists of three contributions. A band at 90 cm−1 has to be attributed to orientational motions of molecules within certain clusters prevailing at high concentrations. On dilution with CCl4, the clusters are preserved even at concentrations as low as 20 mole %. Below 20 mole % the model of clusters has successively to be replaced by the model of an equilibrium between · antiparallel dimer molecules absorbing at 75 cm−1 owing to intermolecular vibrations and · monomer molecules which absorb at 65 cm−1 owing to librations about temporary equilibrium positions within the cage of solvent molecules (Poley absorption).

Dynamics of expectations in temporary general equilibrium theory

In Temporary General Equilibrium Theory the action of the agents depends on their forecasts of what the future will be. The paper studies how the expectation functions which are used to build these forecasts can be formed and revised along time, according to different hypothesis on available information and behaviour. In such a context, a state of an exchange economy is a point in an infinite dimensional space, describing both the prices of commodities and the individual expectation function of each agent. It is first shown that, for the information structures and behaviours which are considered, reasonable dynamics can be introduced on the space of states. Then the asymptotics of these dynamics are studied and, according to the hypothesis made, conditions are given for convergence of expectations and prices, separately or together, to the stationary values of the model.

Excess demand for labor, unemployment, and theories of the Phillips curve

This article has two purposes. First, to examine the assumption that it is possible to map uniquely between unemployment and excess demand for labor; this assumption plays a key role in the theory of the Phillips curve. We show that as both unemployment and excess demand for labor are endogenous and simultaneously determined, in general it is not possible to obtain a unique mapping between unemployment and excess demand for labor and that the Lipsey and Barro and Grossman derivations of the Phillips curve are invalid. Secondly, the article recommends that wage, employment, and unemployment behavior be modelled using short-run supply and demand curves, that is, in a Marshall-Hicks temporary equilibrium framework.