Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model

46 Pages Posted: 15 Mar 2004 Last revised: 29 Aug 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: August 1982

Abstract

This paper presents an intertemporal disequilibrium model with rational expectations, i.e. a model in which agents anticipate the future rationally, but in which prices and wages may not adjust fast enough to maintain continuous market clearing. Therefore, optimizing firms and households base their intertemporal plans on anticipations of both future quantity constraints and future prices. Such a model shows clearly that the effect of a policy depends not only on its current values but its anticipated path, After a presentation of the model and its basic dynamics, we therefore consider the effects of various paths of fiscal policy on the economy.

Suggested Citation

Blanchard, Olivier J. and Sachs, Jeffrey D., Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model (August 1982). NBER Working Paper No. w0971. Available at SSRN: https://ssrn.com/abstract=302547

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Peter G. Peterson Institute for International Economics ( email )

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Jeffrey D. Sachs

Columbia University - Columbia Earth Institute ( email )

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National Bureau of Economic Research (NBER)

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United States

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