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When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed, as in Rogerson (1988). We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets, as in Lagos and Wright (2005). This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show that the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips curve provides a long-run, exploitable, trade-off for monetary policy; it turns out, however, that the optimal policy is the Friedman rule.
Peter A. Diamond discusses search equilibrium as a framework for integrating micro and macroeconomics.
To study the determination of the natural rate path, Phelps constructs three stylized general-equilibrium models, each one built around a distinct kind of asset in which firms invest and which is important for the hiring decision.
This book is concerned with the problem of wage rigidities in macroeconomic theory, and their implications for public policy. It offers an analysis of the microeconomic foundations of rigid wages, considering their implications for normative economics, and their role in explaining involuntary unemployment. The initial chapters examine short-run macroeconomic equilibrium with nominal rigidities within the framework of fix-price temporary equilibria. This is followed by an overview and assessment of the main microeconomic mechanisms likely to account for real wage rigidity. In this context new findings concerning implicit contract theory, union behaviour and efficiency wage models are reported. The effect of efficiency wage models on macroeconomic fluctuations is also considered. Finally an analysis of the important public policy issues raised in the book is provided.
Intellectual time lags exist in every field of science. So it is that even today one often hears the same old common knowledge nonsense and simplistic analysis from the early post-Keynesian era when students learned about some of the monetary and fiscal policies applicable to the U.K. and its institutions (Keynes) on the premise that they are also applicable to the U.S. Many are not. The result has all too often been inflation or massive unemployment that continues even though it could be quickly ended without fiscal changes or new laws. This is a re-presentation of Professor Lindauers early ground-breaking work from the 1960s. It explains why not all Keynesian and neo-classical theory and monetary and fiscal policies are applicable to the unique structure and institutions of the United States and how the current United States malaise can be quickly ended - via a new approach to monetary policy, long ago explained by Lindauer and adopted by other countries. It was while at Claremont as professor of economics that Lindauer first modeled the concept of aggregate supply and related it with the concept of aggregate demand to develop many of the macroeconomic theories presented herein and integrate them into the then-existing theories of inflation and unemployment. Importantly in these days of high unemployment, the unique and quickly effective monetary policies he suggested years ago to end recessions and depressions without causing inflation or exacerbating government deficits are today immediately available without requiring fiscal changes or the passage of new laws and regulations. Professor Lindauers other publications include Land Taxation and Indian Economic Development (with Sarjit Singh); various editions of his Macroeconomics series; and his early ground-breaking journal articles such as Stabilization Inflation and the Inflation-Unemployment Trade-off. A non-technical version of this work is available as Inflations, Unemployment, and Government Deficits: End Them. It is suitable for journalists, laymen, and lawyers serving as Federal Reserve governors. Lindauers books have been translated into Japanese, Spanish, Portugese, Korean, Hindi, and Chinese and the policies his theories suggest implemented by central banks around the world. He has additionally served as a visiting professor at Sussex University, the University of California (SD), and Punjab University. He lives in Scottsdale and Chicago. His teaching is limited to lectures and visiting professorships.
Microeconomics; Market equilibrium and disequilib rium; Disequilibrium trading and quantity signals; Effective demand: A first approach; Effective demand and spillover effects; Price making; Non-Walrasian equilibrium concepts; The general framework; Fixprice equilibria; Expectations and temporary fixprice equilibria; Temporary equilibria with price makers; Efficiency; Macroeconomics; A model of unemployment; Unemployment and expectations; A model of unemployment with flexible price; A model of inflation.