General Equilibrium Under Shortage: A Generalized Barro-Grossman Model

June 1, 1991

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Format: Chicago

Kent Osband. General Equilibrium Under Shortage: A Generalized Barro-Grossman Model, (USA: International Monetary Fund, 1991) accessed October 9, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In several recent articles, the Barro-Grossman model of general equilibrium under shortage has been modified to incorporate money demand and alternative retail sales mechanisms. This paper extends this work to allow for spillovers in deficit goods markets (modeled as feedback of black market prices on the real value of nominal money balances). Comparative statics analysis confirms the conventional view, recently challenged in the literature, that government expenditure in a shortage economy tends to reduce output. The conventional view associating shortage with higher savings is, however, substantially qualified. The model appears to be more consistent than previous models with the available empirical evidence, and offers insights into the consequences of price and monetary reform in shortage economies.

Subject: Consumption, Economic sectors, Income, Informal economy, Labor, National accounts, Wages

Keywords: Black market price, Consumption, Deficit goods, Excess demand, Government spending, Income, Informal economy, Money balance, Money holding, Supply multiplier, Utility function, Wages, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/059
Stock No:

WPIEA0591991
ISBN:

9781451965667
ISSN:

1018-5941

Notes

Investigates a model of general equilibrium in a "shortage economy" -- that is, an economy with significant excess demands at the officially controlled prices.

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