General Equilibrium Under Shortage : A Generalized Barro-Grossman Model

Author/Editor:

Kent Osband

Publication Date:

June 1, 1991

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.

Series:

Working Paper No. 91/59

Subject:

Notes:

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

English

Publication Date:

June 1, 1991

ISBN/ISSN:

9781451965667/1018-5941

Stock No:

WPIEA0591991

Format:

Paper

Pages:

33

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