1、Chapter 6 Microeconomic Foundations of Incomplete Nominal Adjustment周泳宏暨南大学经济学院 周泳宏introductiono The sluggish adjustment of nominal wages and prices is central to Keynesian models.o Investigating the microeconomic foundations of that sluggish adjustment is necessary for making the models fully speci
2、fiedo But simply introducing some departure from perfect markets is not enough to imply that nominal disturbances matter暨南大学经济学院 周泳宏o Any microeconomic basis for failure of the classical dichotomy requires some kind of nominal imperfectionn Classical Dichotomyo Monetary disturbances cause all nomina
3、l prices and wages to change,leaving the real equilibrium unchanged暨南大学经济学院 周泳宏o We examine three nominal imperfectionsnPart Ao Lucas(1972)and Phelps(1970)o The nominal imperfection is that producers do not observe the aggregate price levelnPart Bo Monetary shocks have real effects because not all p
4、rices or wages are adjusted simultaneouslynPart Co Small costs of changing nominal prices or wageso Other small friction in nominal adjustmentPart AThe Lucas Imperfect-Information Model暨南大学经济学院 周泳宏Introductiono When a producer observes a change in the price of his or her product,he or she does not k
5、now whether it reflects a change in the goods relative price or a change in the aggregate price leveln A change in the relative price alters the optimal amount to producen A change in the aggregate price level leaves optimal production unchanged暨南大学经济学院 周泳宏6.1 the case of perfect information（1）Produ
6、cer Behavioro Representative of a typical good inQi:the amount he or she producesnLi:the amount that the individual worksnCi:the individuals consumptionnP:the price of the market basket of goods an index of the prices of all goodsiiiiiQLPQCPThe individuals consumption equals his or her real income暨南
7、大学经济学院 周泳宏o Utility depends positively on consumption and negatively on the amount workedo P is given1iiiiPLULPiiLMaxU1,1iiiUCL11.iiPF OCLP11x LnXiilppThe individuals labor supply and production are increasing in the relative price of his or her product暨南大学经济学院 周泳宏（2）Demando The demand for a given g
8、ood is assumed to depend on three factors:real income,the goods relative price,and a random disturbance to preferenceso The demand for good i is:()iiiiiqyzppyqppy:the log aggregate real incomez:the shock to the demand.The zis have a mean of zero across goods.:the elasticity of demandy is assumed to
9、equal the average across goods of the qis and P is the average of the pis暨南大学经济学院 周泳宏o The aggregate demand side of the modelnThere are various interpretations of this equationnThere is an inverse relationship between the price level and outputnm should be thought of as a generic variable affecting
10、aggregate demand rather than as moneyymp暨南大学经济学院 周泳宏（3）Equilibriumo Demand per producer equal supply1()1iiiiiqlyzpppp11iipyzp0y011izippypympmpIn a case of perfect information,money is neutral:an increase in m leads to an increase in p.No real variables are affected暨南大学经济学院 周泳宏6.2 the case of imperfe
11、ct informationo Defining the relative price of good i by rio The individual does not observe ri,but must estimate it given the observation of piiippriirpp1111iiiiilpplE r pRational expectations the producer finds the expectation of ri given pi rationally暨南大学经济学院 周泳宏o Individuals problemnProve ito Th
12、e fraction of the departure of the pi from its mean that is estimated to be due to the departure of ri from its mean is()riiirpVE r ppE pVV iiiE r pp When two variables are jointly normally distributed,the expectation of one is a linear function of the observation of the otherrrpVVV暨南大学经济学院 周泳宏Lucas
13、 supply curve111()1()()iiiriirrpiiirpiilE r pVlpE pVVVE r ppE pVVlb pE p()11iirrpyqlb pE pVbVVLucas supply curve the departure of output from its normal level(which is zero)is an increasing function of the surprise in the price level暨南大学经济学院 周泳宏o Equilibrium1()()11()11bpmE pyb pE pbbbbympymE pbb ()m
14、E mmE m 111pE mmE mbbymE mbThe component of aggregate demand that is observed,E(m),affects only prices,but the component that is not observed,m-E(m),has real effects 1()11bE pE mE pE pE mbbTaking the expectations of both sides暨南大学经济学院 周泳宏The expression of b()(6.7):()()()y b p E piiiiiiqyzppqb pE pzp
15、p(6.20):()()iiilb pE pb ppb pE piiqliizppbiirpp 22116.26:11E mE ppmpE mmE mVE pE mVbb2izrzVVVarbb2211111rzrpzmVVbVVbVVb暨南大学经济学院 周泳宏The expression of bo b is increasing in Vz and decreasing in VmnThe special case:221(),11zzmVyb pE pbbVVbymp111zzmVbVV暨南大学经济学院 周泳宏6.3 Implications and Limitationso The P
16、hillips Curve and the Lucas CritiquenLucass model implies that unexpectedly high realizations of aggregate demand lead to both higher output and higher-than-expected pricesnThe model implies a positive association between output and inflation 111pE mmE mbbymE mb暨南大学经济学院 周泳宏An example11tttttmmcuE mmc
17、 11211211121112111111111111111tttttttttttttttttttttttttttttmmc ummc ummc utttbbymE mubbpE mmE mmcubbpmcubppmmuubbcuubb White noisea random walk with drift暨南大学经济学院 周泳宏Phillips curveo However,the statistical relationship between output and inflation may change if policymakers attempt to take advantage
18、 of it11111111ttttttttbcuubbbcuybbbyubPhillips curve a positive relationship between output and inflation暨南大学经济学院 周泳宏Lucas critiqueo Expectations are likely to be important to many relationships among aggregate variables,and changes in policy are likely to affect those expectationso If policymakers
19、attempt to take advantage of statistical relationships,effects operating through expectations may cause the relationships to break down暨南大学经济学院 周泳宏Anticipated and Unanticipated moneyo Only unobserved aggregate demand shocks have real effectsn Monetary policy can stabilize output only if policymakers
20、 have information that is not available to private agentsn Any portion of policy that is a response to publicly available informationsuch as interest rates,the unemployment rate,or the index of leading indicatorsis irrelevant to the real economy暨南大学经济学院 周泳宏o Only unobserved aggregate demand shocks h
21、ave real effectsnlet 1bymE mb*mmv 1byvE vb *E mmE v暨南大学经济学院 周泳宏Empirical application:international Evidence on Output-Inflation Tradeoffso Lucas implicationnIf aggregate shocks are large,suppliers attribute most of the changes in the prices of their goods to changes in the price level,and so they al
22、ter their production relatively little in response to variations in prices()11rrpiiyb pE pVbVVrpp暨南大学经济学院 周泳宏The estimates of the responsiveness of output to aggregate demand movementsThe average size of countries aggregate demand shocks:The standard deviation of the change in log nominal GDPA measu
23、re of aggregate demand shock:the change in log nominal GDPthe real log GDPNominal shocks have smaller real effects in settings where aggregate demand is more volatilePart B Staggered Price Adjustment暨南大学经济学院 周泳宏IntroductionoThe next source of nominal imperfections we consider is staggered adjustment
24、 of prices and wagesoThere are three reasons for the importance of the microeconomic foundationsnIf not all prices or wages are free to change,aggregate demand policy can be stabilizing even under rational expectationnLay the groundwork for the model where nominal rigidity is derived from optimizing
25、 behavior at the microeconomic levelnIt shows that the interactions among price-setters can either magnify or dampen the effects of barriers to price adjustment暨南大学经济学院 周泳宏o We consider three models of staggered adjustmentnTime-dependent models Wages or prices are set by multiperiod contracts or com
26、mitmentso Fischer model assumes that prices or wages are predetermined but not fixeda contract can specify a different price for each periodo Taylor model assumes that the prices are fixed a contract must specify the same price each periodnCaplin-Spulbers State-dependent pricing modelo Prices change
27、s are triggered by developments within the economyo As a result,the fraction of prices that change in a given time interval is endogenous暨南大学经济学院 周泳宏o Before turning to staggered adjustment,we first investigate a model of an economy of imperfectly competitive price-setters with complete price flexib
28、ilitynWe can understand the barriers of price adjustment wello It shows that what prices firms would choose in the absence of barriers to adjustment and what happens when prices depart from those levels暨南大学经济学院 周泳宏6.4 A model of Imperfect Competitive and Price-Settingo Assumptionsn Large number of i
29、ndividualsn Each one sets the price of some good and is the sole producer of that goodn Labor is the only input into productionn Individuals do not produce their own goods directlyn A competitive labor market where they can both sell their labor and hire workers暨南大学经济学院 周泳宏o The shocks to the demand
30、s for the individual goods(z)are absento The utility of a typical individual iso Sellers with market power set price above marginal cost.Individual is profit income is1(6.2):,1iiiUCL0(6.7):()()1iziiiiiqyzppqypp,iiPW QiipQYp暨南大学经济学院 周泳宏o Individual is income is the sum of profit income and labor inco
31、menCi is the individuals income divided by the price indexo The aggregate demand side of the model11iiiiiiiPW QWLUCLLPiympyq暨南大学经济学院 周泳宏Individual Behavior111iiiiiiiiiiiiiiPW QWLUCLLPpQYppPW YWLpULP1,11iiiiP LiPWPPMaxUWLPA producer with market power sets price as a markup over marginal cost,with the
32、 size of the markup determined by the elasticity of demandLabor supply is an increasing function of the real wagethe elasticity暨南大学经济学院 周泳宏Equilibrium level of output1111symmetryiiiiiyqlylYLWYWPLP1iPWPP*11iPYP111111symmetricYYlog*ln11ippycyEach producers charges the same price暨南大学经济学院 周泳宏Implication
33、o Symmetric allocationo Equilibrium level of output1111iiiiiiLPW QWLPW LWLULLLLPPMaxUL1111YLWhen producers have market power,they produce less than the socially optimal amountThe gap between the equilibrium and optimal levels of output is greater when producers have more market power(is lower)and when labor supply is more responsive to the real wage(is lower)暨南大学经济学院 周泳宏Equilibrium level of price1111log11YMPMympYP
