Working Paper: NBER ID: w0971
Authors: Olivier J. Blanchard; Jeffrey Sachs
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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated future constraints on investment (E22) | increased current demand for investment goods (E22) |
| high anticipated deficits in the U.S. (H68) | high long-term real interest rates (E43) |
| anticipated fiscal burdens on firms (H32) | sluggish private investment (E22) |