Walras-Keynes equilibria coordination and macroeconomics

Dreze, Jacques
(1997) European Economic Review — Vol. 41, n° 9, p. 1735-1762 (1997)

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  • Dreze, JacquesUCLouvain
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Abstract
In decentralised market economies, supply-constrained equilibria may persist as coordination failures, sustained but not caused by price rigidities. This feature may be arbitrarily severe, even at prices compatible with competitive equilibrium. The supply constraints may originate in rational expectations. Some implications for macroeconomics are drawn. The possibility of coordination failures explains why organised labour may resist wage flexibility. These features are illustrated in elementary macroeconomic prototypes, like RBC or Barro-Grossman-Malinvaud prototypes.
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Dreze, J. (1997). Walras-Keynes equilibria coordination and macroeconomics. European Economic Review, 41(9), 1735-1762. https://doi.org/10.1016/S0014-2921(97)00085-8 (Original work published 1997)