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Advanced Lectures in Quantitative Economics by Frederick van Der Ploeg

By Frederick van Der Ploeg

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Sample text

Their key feature is that goods market rationing can emerge in one sector (either the exportable or the non-traded sector depending on the model) but not in the other (either the importable or the traded good sector). 1. Rather than presenting their properties in exhaustive detail, I will concentrate here on the traded-non-traded model and merely note how its properties differ from those of the one-good neoKeynesian model. 4, where a model with a traded good and a. flex-price non-traded good sector was examined in detail.

20 Peter Neary 3. An Elementary Sticky Wage Model In the previous section, I devoted rather more attention than might be expected in a survey of fix-price open-economy models, to considering the properties of a simple Walrasian full-employment model. The advantage of this approach is that it highlights the differences which may be attributed to the presence of wage and price rigidities. In the present section, I take the first step towards considering disequilibrium models proper by adding to the model of the last section the assumption that the wage rate is predetermined in the current period.

8) in the last section, must now be amended to take account of the conditions which actually prevail in the labour market. Suppose first that unemployment prevails. This must reduce the actual income received by households and so the condition must be rewritten as follows: 17 The principal differences between my model and that of Dixit are that I assume that households' notional labour supply is fixed and I ignore distribution effects in demand. The consequences of these differences will be noted where appropriate.

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