1. General equilibrium and the new neoclassical synthesis.
- Author
-
Herings, P.
- Subjects
ECONOMIC equilibrium ,NEOCLASSICAL school of economics ,STOCHASTIC processes ,COMMERCIAL products ,MONETARY policy - 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. [ABSTRACT FROM AUTHOR]
- Published
- 2014
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