Center for Economic Research, Department of Economics, University of Minnesota
The paper formulates and analyzes a simple piecewise linear macroeconomic
model with buffer stock inventories. Buffer stocks partly eliminate the
rationing of the demand for goods, since rationing appears only when a stock-out
in possible. This means that the region of Classical Unemployment
necessarily shrinks, and it even disappears when buffer stocks absorb all the
randomness of aggregate demand for goods. The inventory dynamics with
constant wages and prices have steady states either in the region of Keynesian
Unemployment or Repressed Inflation. In the former case the motion is
oscillatory and either converges or ends in a limit cycle, while in the latter
it is monotonic. Some of the complications caused by flexible wages and prices
are sketched but the results are heavily dependent on the nature of wage and
Honkapohja, S. and Ito, T., (1979), "Inventory Dynamics in a Simple Disequilibrium Macroeconomic Model ", Discussion Paper No. 124, Center for Economic Research, Department of Economics, University of Minnesota.
Honkapohja, Seppo; Ito, Takatoshi.
Inventory Dynamics in a Simple Disequilibrium Macroeconomic Model.
Center for Economic Research, Department of Economics, University of Minnesota.
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