Temporary Equilibrium Research Articles

Walras: a Hicksian avant la lettre

In light of the common view of Walras’ contribution to economic theory, Hicks is credited with the introduction of a method of dynamic economics that is based upon the temporary equilibrium concept and the prevalence of intertemporal uncertainty. However, a close reading or Walras’ Elements of Pure Economics results in a picture of Walras’notions closely related to the Hicksian view. In effect, Walras may be regarded as a Hicksian avant la lettre.

The effects of U.S. shocks on Canadian total factor productivity growth: The case of the electrical products industry

This paper examines the influence on domestic total factor productivity of foreign income and price variations. The underlying model is a temporary equilibrium model of a pricediscriminating monopolist, who faces two markets with different demand elasticities, a fixed capital stock and economies of scale. A reduced form decomposition of total factor productivity growth is derived. The model is estimated on the data of the Canadian electrical products industry from 1962 to 1981.

Temporary equilibrium with storable commodities

This paper fills a gap in temporary equilibrium theory by establishing necessary conditions and sufficient conditions for the existence of temporary equilibrium in a sequential economy with spot and incomplete futures markets for storable commodities and with heterogeneous expectations. An important realistic feature of the model is an uncertain storage technology. Overlapping expectations and the usual sufficient conditions guarantee the existence of equilibrium. Inventory speculation implies a lower bound on current spot prices in terms of futures prices and the storage technology. These results extend to an economy in which observed aggregate inventories influence expectations in a well-behaved manner.

Simulating the Effects of Random Waves on Concave-Shaped Nearshore Profiles

A dynamic model for the stochastic simulation of wave action on concave-shaped nearshore profiles is presented. The Airy, Stokes and Cnoidal wave theories, together with the appropriate shoaling equations are used in the simulation. Wave heights are adjusted for breaking conditions, and bed load and suspended load are computed with the best available equations. On each iteration, which is approximately seventy minutes of real time, deep water wave heights and periods are parameterized in the model with autocorrelated Rayleigh distributed variates. The tidal range, which changes every twelve iterations, is a normally distributed random variate. Using different initial slopes but identical wave and sediment input values, a FORTRAN IV program is executed for two simulation runs, with each run lasting for 1512 iterations. The results demonstrate that on a short-term basis the configuration of the profile developed for the first run of the simulation is not repeatable for the second simulation run. However, on each simulation run, the cumulative effects of low deepwater steepness values influence the development of a nonbarred configuration, while sustained high steepness values can be correlated with erosion and bar formation. Both barred and nonbarred configurations attain some form of temporary and repeatable equilibrium when sediment transport is not initiated, and when consecutive input values of wave heights and periods remain almost constant. Temporal variations in wave steepness not only give an indication of breaker type, but also reflect changes in the various components of wave velocity, and the magnitude and direction of sediment transport. It is shown that with plunging breakers the bulk of the transported load is deposited just seaward of the breakpoint position, while spilling breakers and higher steepness values generally cause an onshore movement and deposition of material.

On closure rules, homogeneity and dynamics in applied general equilibrium models

The problem of model ‘closure’ has been a major focus of the literature on the theoretical aspects of applied general equilibrium models. This paper addresses the issue by focusing on the implicit behavioral assumption leading to the existence of the closure problem. To do this, it uses a simple temporary equilibrium to make explicit the microeconomic behavior underlying these types of models. The closure problem is analyzed through the assumptions on the role of relative prices that it implies. In particular, emphasis is put on two mechanisms - the real balance effect and an expectation effect - in potentially ensuring the existence of an equilibrium. The paper concludes by showing the implications of this analysis for the construction of a theoretical framework for fully dynamic general equilibrium models.

Behavioral Modes for a Firm Facing an Uncertain Supply or Demand Curve

This paper contains a theoretical analys is of the behavior of a firmfacing a stochastic supply and demand curve. Certai n behavioral modes can be ranked under weaker conditions than in corresponding s tudies on stochastic demand. For other comparisons, the authors derive sufficien t conditions for one mode to dominate another. Earlier results indicate that a f irm which faces demand uncertainty prefers variability to quantity variabi lity. It is shown by a counter example that the price variability preference, which is troublesome for proponents of temporary fixed-price equilibrium models, is a consequence of restrictive stochastic specification. Copyright 1987 by The editors of the Scandinavian Journal of Economics.

CASH CROP PRODUCTION AND THE BALANCE OF TRADE IN A LESS DEVELOPED ECONOMY: A MODEL OF TEMPORARY EQUILIBRIUM WITH RATIONING

This paper investigates a model of temporary equilibrium with rationing for a l ess developed economy (e.g., Tanzania) suffering balance-of-payments problems as a result of declining cash crop production. The model consists of an agricultur al sector producing cash and subsistence crops, an industrial sector, and a fore ign trade sector. It shows that declining cash crop production may be dueprimar ily to rationing of industrial goods and that increasing the producer price of t he cash crop-whether relative to the subsistance crop or the general price level -may have perverse effects. Copyright 1986 by Royal Economic Society.

A Reconstruction of Marshall's Temporary Equilibrium Pricing Model

A Reconstruction of Marshall's Temporary Equilibrium Pricing Model

North-south trade: Export-led Growth with Abundant Labour

A North-South model is developed in which the South is represented as a neo-classical dual economy. Conditions are imposed which make temporary equilibrium unique and Walrasian stable and long run balanced growth paths globally asymptotically stable. In the short run an expansion of Northern demand for Southern products always improves the terms of trade. In the long run, however, an increase in the growth rate of Northern demand can turn the terms of trade against the South, reduce real wages and lower living standards.

Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium

One of the most persistent puzzles addressed by recent productivity research is the substantial decline in measured productivity growth during the 1970's. In this paper we trace a substantial part of the measured decline to the fact that traditional methods of productivity measurement assume that producers are in long-run equilibrium when in fact they may be in short-run or temporary equilibrium. We utilize the Marshallian framework of a short-run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for temporary equilibrium. Within this theoretical framework it is the value of services from stocks of quasi-fixed inputs which should be altered rather than the quantity. The empirical application to U.S. manufacturing data 1958–81 shows that, depending on the measurement procedure, one can attribute somewhere between 18% and 65% of the traditionally measured decline in TFP growth between 1965–73 and 1973–81 to the effects of temporary equilibrium.

Total-factor-productivity measurement when equilibrium is temporary: A Monte Carlo assessment

The use of total-factor-productivity ( TFP) indices to estimate rates of technical change is predicated on the assumption of long-run equilibrium in all markets. Unfortunately, temporary equilibrium is a ubiquitous feature of the real world. It is therefore important to know what sort of errors are made when short-run equilibrium prevails but long-run equilibrium is assumed. When we know how sensitive calculated TFP indices are to different sorts of misspecification, we will know when there is no simple alternative to econometric estimation. This paper reports the results of Monte Carlo experiments designed to assess the ability of temporary-equilibrium TFP indices to capture the properties of the underlying long-run technology as the features of this technology change. The experiments include varying the cost share of the fixed factor, the degree of substitutability among the fixed and variable factors, the degree of returns to scale of the long-run technology, and the variances of the market price of the fixed factor and of output.

Aggregate output with variable rates of utilization of employed factors

Empirical evidence has long shown that output varies more in the short run than do all factor inputs, including employment and hours worked. In such a context, long-run equilibrium involves the choice of average factor proportions and rates of utilization of employed factors, also referred to as operating rates, that minimize total cost of producing the desired level of output. In response to unexpected or temporary changes in demand or costs conditions, optimal temporary equilibrium involves some changes in factor demands coupled with the joint use of pricing and production decisions to make best use of the buffering capacity provided by inventories and factor utilization rates. Applying this framework to aggregate annual data, this paper concentrates on the econometrics of the production or operating rate decision, since the operating rate is the key adjusting variable in the short run. The operating rate decision also reveals most clearly the important consequences of quasi-fixity, and shows how our model contrasts with more conventional treatments. Non-nested hypothesis tests are used to compare the preferred specification with several alternatives.

Temporary equilibrium production models for a common-property renewable-resource sector

Temporary equilibrium production models for a common-property renewable-resource sector are developed and used to measure the shadow value of the resource. The structure of these models incorporates the biological dynamics and the ownership rights. Under sole ownership, the firm chooses the utilization level of the resource stock, which in turn affects his investment policy in the resource. For an open-access fishery, the firm behaves as if the shadow value was zero. To measure the shadow values for an open-access fishery, a model of downstream market behavior is proposed. This model is implemented for the North Pacific halibut fishery.

An Exchange Rate Determination by Portfolio Approach in Korea: Empirical Results

In the late 1960s, the standard model of the foreign exchange market had supply and demand as stable function of exports and imports. However, the period of floating rates that began in the early 1970s has revealed that exchange rates exhibit the volatility of financial market prices. The monetary approach to exchange rate determination had essentially one way causation from money to exchange rates, via purchasing power parity. The exchange rate, in the asset market view, is determined by financial market equilibrium conditions. Initial stock of assets determine temporary equilibrium values for endogenous such as exchange rates. It influences the trade balance and current account. The latter in turn is the rate of accumulation of national claims or liabilities to foreigners, and this feeds back into financial market equilibrium. This study uses a Tobin's financial asset equilibrium framework to test the portfolio balance model of exchange rate determination in Korea. In Branson, Halttunen and Masson (1979), three outside assets were recognized for each country: Ml, cumulated current account, and net government debt. Their exchange rate equation excluded the two government debts. In Dornbush (1980), there was only one asset whose unexpected, movement had impact on exchange rate movement and it was the net stock of foreign assets held by residents. In this study, we limit our specification to the outside assets of the two countries (Korea-U.S.A.) under consideration. A small country like Korea is one whose bonds are not held by non-residents and which has no impact on the foreign inter est rate. This mean that the accumulation of foreign financial assets is done through the

Unions, Employment and the Inflation Tax

The main purpose of this paper is to analyse the possible effects of an 'inflation tax' (or tax-based incomes policy) on the employment level in an economy in which trade unions play a central role in wage setting. A tax-based incomes policy (TIP) has long been advocated in the United States as a means of curbing inflation without disastrous short-run consequences for employment.' Advocates of TIP see it as an additional force working by incentive rather than regulation which helps to keep down inflationary wage bargains. This increases the scope of demand management for maintaining high levels of employment in a relatively non-inflationary way. However, it was not envisaged that TIP could have any permanent effect on the long-run equilibrium level of employment. Implicit in this view is the assumption that long-run equilibrium employment is determined by a competitive market in the usual Walrasian manner. Furthermore, since in such a long-run equilibrium the rate of inflation is uniquely determined by the rate of monetary expansion, TIP has no long-run value in curbing inflation either. Thus the only role possible for TIP is as a temporary measure which eases the transition from a short-run temporary equilibrium, characterised by too much inflation and too little employment, to the long-run equilibrium characterised by full employment and moderate inflation. More recently in Britain, it has been argued that the scope of an instrument which taxes 'excessive' wage increases is greater than was originally conceived. In a series of papers, Professor Layard has put forward the original and provocative idea that British policy makers adopt a form of TIP on a permanent basis as this will have a permanent effect on long-run employment. According to this view, even if a temporary incomes policy succeeded in reducing inflation to a constant and moderate level without unemployment being too far above its long-run value, the amount of unemployment in the long run would be unacceptably high. Furthermore, a permanent TIP (in some form) is the only way to reduce this high long-run-equilibrium unemployment. As Layard (I982) puts it: 'Only a permanent incomes policy can substantially reduce the non-inflationary level of unemployment '.2 The idea of a permanent TIP may seem a somewhat startling and radical proposal to some economists. The claim that such a policy can actually increase long-run employment even though it obviously adds to employers' costs may seem

Clinical significance of venom antigen levels in patients envenomed by the Malayan pit viper (Calloselasma rhodostoma).

Serial venom antigen levels were measured by enzyme-linked immunosorbent assay (ELISA) in 46 patients with systemic envenoming by the Malayan pit viper (Calloselasma rhodostoma), a major cause of snake bite in Southeast Asia. The principal effects of the venom are defibrination, hemorrhage and local tissue necrosis. Admission venom levels, which varied between 0 and 595 ng/ml, correlated with the incidence of spontaneous systemic bleeding, blood incoagulability and concentrations of plasma fibrinogen and serum fibrin degradation products. The presence or absence of nonclotting blood also correlated with the time elapsed between the bite and hospital admission. The development of nonclotting blood may be delayed by up to 72 hr after the bite even though circulating venom and raised FDP may be detected at presentation. This is probably explained by a temporary equilibrium between synthesis and consumption of fibrinogen. Venom antigenemia recurred in 12 patients (26%) suggesting continuous absorption of venom from the wound or saturation of extravascular binding sites. Admission venom levels also correlated with the extent of local swelling and the occurrence of tissue necrosis at the site of the bite. Venom was detected in 87% of wound aspirates and 88% of urine specimens taken on admission. Tourniquets, of the type used in rural Thailand, did not delay the absorption of venom into the circulation.

La réduction des prélèvements sur les entreprises

The reduction of corporate tax and social security contributions, by Bernard Ullmo. Beyond the sharp controversies in terms of economic doctrine relative to the reduction of corporate taxes and social security contributions, this paper will seek to test the issue by resting its argumentation on the findings of macroeconometric models and of theoretical and empirical surveys. We intended to test two current assumptions: that, according to the fixed-prices temporary equilibrium theory, firms which operate under a "classical régime" tend to invest all of the transfer payments made to them, whereas firms under a Keynesian regime tend to employ such transfer payments in other ways; that a large proportion of French firms find themselves currently operating under a "classical régime", owing to the low profit-rate that limits their growth. Yet, none of the experimental methods used in this research, have clearly demonstrated the existence of such a large proportion of firms following the pattern set by the classical regime. Furthermore, the overall efficiency of a policy of reduction of corporate taxes and social security contributions is not to be found in the circuits by which public transfer payments are turned into productive investments. But other efficient though indirect mechanisms should not be excluded, the policy appears to produce its most favourable results whenever the sharpest drops in domestic prices are obtained, and the repercussion on export prices and on the volume of imports and exports maximized. The model Metric, unlike Dms and Copain. substantiates the favourable pattern of behaviour. In summary, there is some uncertainty as to the regimes, and by way of consequence, the investment behaviours, the wage-price cycles and the sub-model related to foreign-trade. Therefore, there could be no decisive evidence in support of the desirability of a reduction of corporate taxes and social security contributions.

A policy rule for ‘Say's Law’ in a theory of temporary equilibrium

In a theory of temporary macroeconomic equilibrium this paper considers whether there is a simple nondiscretionary rule of monetary management under which the free play of market forces will always equate aggregate money demand to the sum of expected money incomes, whatever the latter may be, so that aggregate demand ceases to be a determinant of the economy's behavior. The rule proposed is that the Central Bank should let the commercial banks determine their cash reserves by trading negotiable securities with it at current prices. The conditions for the rule's success are given and are supported by theoretical considerations.

Relaxing the sure-solvency conditions in temporary equilibrium models

The usual temporary equilibrium results hold when sure-solvency conditions are appropriately relaxed. Preferences over potentially bankrupt states are represented by an extension of the indirect utility function for negative wealth. For models without institutional constraints such as margin requirements, sure-solvency can be replaced by unbounded aversion to bankruptcy. For models with institutional constraints, sure-solvency can be replaced by a weaker limit on maximum loss (or expected loss).

A DUAL DECISION APPROACH TO DISEQUILIBRIUM GROWTH

ITO'S (1978, 1980) basic model of disequilibrium growth retains Solow's (1956) neoclassical assumption of a constant exogenous saving rate. Recently, in a critical survey, Ito himself (1982) questions the assumption and recognizes that endogenizing the saving rate would be more consistent with optimizing behavior. To achieve this, one has to consider the optimal consumption and saving program of households which may happen to be constrained on the labor or the goods market. The generalization of Ito's model requires thus a dynamic counterpart to the static Dual Decision Hypothesis (DDH for short) introduced by Clower (1965) and Barro and Grossman (1976). Henin and Michel (1982a and b) have considered the disequilibrium growth path of an economy with price and wage rigidities, given by the optimal accumulation program of firms. A dual decision extension of this work is provided here, in which it is assumed that households also are intertemporal utility maximisers. Both households and firms have a fully rational (perfect foresight) behavior: their expectations are always equal to the actual solution of the intertemporal model. Section 2 discusses a simple model, in which consumers decide on the growth of capital, and firms simply adapt employment to the given capital stock. Section 3 is concerned with an extension which takes into account dual decisions of consumers and producers, in a growth framework; it is shown that four temporary equilibrium regimes will emerge, while in the long run, full employment growth is achieved. Conclusions are offered in Section 4.