TY  - JOUR
AU  - Honkapohja, Seppo
AU  - Ito, Takatoshi
TI  - A Stochastic Approach to Disequilibrium Macroeconomics
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 1
PY  - 1979
Y2  - September 1979
DO  - 10.3386/t0001
UR  - http://www.nber.org/papers/t0001
L1  - http://www.nber.org/papers/t0001.pdf
N1  - Author contact info:
Seppo Honkapohja
Bank of Finland
Finland
E-Mail: Seppo.Honkapohja@bof.fi

Takatoshi Ito
Columbia University
School of International and Public Affairs
International Affairs Building
Room 927, (MC 3333)
420 West 118th Street
New York, NY 10027
Tel: 212-854-6401
Fax: 212-749-1497
E-Mail: ti2164@columbia.edu
AB  - In this paper, our aim is to develop an alternative approach to analyzing a macroeconomic model where markets do not clear. Earlier approaches have had difficulties in interpreting effective demand, a key concept in disequilibrium macroeconomics. We propose a new definition of effective demand similar to that of Svensson, Gale, and Green. Given the states of the markets, there is in general uncertainty about the amount of trades individuals can complete. Considering this uncertainty, each individual has to make binding trade offers, i.e., effective demands, a fraction of which will be actually transacted. Using the newly-defined effective demand, we define the rationing equilibrium as a fixed point of disequilibrium signals. We analyze various regimes of rationing equilibria. The most startling conclusion is the multiplicity of equilibria: (1) given wages and prices, there may exist more than one type of equilibrium and (ii) even at Wairasian prices there may exist non-Walrasian equilibria, and these are usually stable with respect to a quantity-adjustment mechanism while the Wairasian equilibrium is unstable, The comparative-static properties of policy we also considered, and they are comparable to those of the earlier approach.
ER  -