宏观经济学英文课件：lecture8 Aggregate Supply

Lecture10

AggregateSupplyslide1ThreemodelsofaggregatesupplyThesticky-wagemodelTheimperfect-informationmodelThesticky-pricemodelAllthreemodelsimply:naturalrateofoutputapositiveparametertheexpectedpriceleveltheactualpricelevelagg.

outputslide2Thesticky-wagemodelAssumesthatfirmsandworkersnegotiatecontractsandfixthenominalwagebeforetheyknowwhatthepricelevelwillturnouttobe.Thenominalwage,W,theysetistheproductofatargetrealwage,,andtheexpectedpricelevel:slide3Thesticky-wagemodelIfitturnsoutthatthenunemploymentandoutputareattheirnaturalratesRealwageislessthanitstarget,sofirmshiremoreworkersandoutputrisesaboveitsnaturalrateRealwageexceedsitstarget,sofirmshirefewerworkersandoutputfallsbelowitsnaturalrateslide4slide5Thesticky-wagemodelImpliesthattherealwageshouldbecounter-cyclical,itshouldmoveintheoppositedirectionasoutputoverthecourseofbusinesscycles:Inbooms,whenPtypicallyrises,therealwageshouldfall.Inrecessions,whenPtypicallyfalls,therealwageshouldrise.Thispredictiondoesnotcometrueintherealworld:slide6ThecyclicalbehavioroftherealwagePercentagechangeinrealwagePercentagechangeinrealGDP1982197519931992196019961999199719981979197019801991197419901984200019721965-3-2-101237865443210-1-2-3-4-5slide7Theimperfect-informationmodelAssumptions:allwagesandpricesperfectlyflexible,

allmarketscleareachsupplierproducesonegood,consumesmanygoodseachsupplierknowsthenominalpriceofthegoodsheproduces,butdoesnotknowtheoverallpricelevelslide8Theimperfect-informationmodelSupplyofeachgooddependsonitsrelativeprice:thenominalpriceofthegooddividedbytheoverallpricelevel.Supplierdoesn’tknowpricelevelatthetimeshemakesherproductiondecision,sousestheexpectedpricelevel,P

e.SupposePrisesbutP

edoesnot. Thensupplierthinksherrelativepricehasrisen,sosheproducesmore. Withmanyproducersthinkingthisway,

YwillrisewheneverPrisesaboveP

e.slide9Thesticky-pricemodelReasonsforstickyprices:long-termcontractsbetweenfirmsandcustomersmenucostsfirmsdonotwishtoannoycustomerswithfrequentpricechangesAssumption:Firmssettheirownprices

(e.g.asinmonopolisticcompetition)slide10Thesticky-pricemodelAnindividualfirm’sdesiredpriceiswherea>0.Supposetwotypesoffirms:firmswithflexibleprices,setpricesasabovefirmswithstickyprices,mustsettheirpricebeforetheyknowhowPandYwillturnout:slide11Thesticky-pricemodelAssumefirmsw/stickypricesexpectthatoutputwillequalitsnaturalrate.Then,Toderivetheaggregatesupplycurve,wefirstfindanexpressionfortheoverallpricelevel.Letsdenotethefractionoffirmswithstickyprices.Then,wecanwritetheoverallpricelevelasslide12Thesticky-pricemodelSubtract(1s

)P

frombothsides:pricesetbyflexiblepricefirmspricesetbystickypricefirmsDividebothsidesbys

:slide13Thesticky-pricemodelHighPe

HighP

Iffirmsexpecthighprices,thenfirmswhomustsetpricesinadvancewillsetthemhigh.

Otherfirmsrespondbysettinghighprices.HighY

HighP

Whenincomeishigh,thedemandforgoodsishigh.Firmswithflexiblepricessethighprices. Thegreaterthefractionofflexiblepricefirms,

thesmallerissandthebiggeristheeffect

ofYonP.slide14Thesticky-pricemodelFinally,deriveASequationbysolvingforY

:slide15Thesticky-pricemodelIncontrasttothesticky-wagemodel,thesticky-pricemodelimpliesaprocyclicalrealwage:Supposeaggregateoutput/incomefalls.Then,Firmsseeafallindemandfortheirproducts.Firmswithstickypricesreduceproduction,andhencereducetheirdemandforlabor.Theleftwardshiftinlabordemandcausestherealwagetofall.slide16Summary&implicationsEachofthe

threemodelsofagg.supplyimplytherelationshipsummarizedby

theSRAScurve

&equationY

PLRASSRASslide17Summary&implicationsSupposeapositiveADshockmovesoutputaboveitsnaturalrate

andPabovethe

levelpeople

hadexpected.Y

PLRASSRAS1SRAS2AD1AD2Overtime,

Perises,

SRASshiftsup,

andoutputreturns

toitsnaturalrate.slide18Inflation,Unemployment,

andthePhillipsCurveThePhillipscurvestatesthatdependsonexpectedinflation,ecyclicalunemployment:thedeviationoftheactualrateofunemploymentfromthenaturalratesupplyshocks,

where>0isanexogenousconstant.slide19DerivingthePhillipsCurvefromSRASslide20ThePhillipsCurveandSRASSRAScurve:

outputisrelatedtounexpectedmovementsinthepricelevelPhillipscurve:

unemploymentisrelatedtounexpectedmovementsintheinflationrateslide21AdaptiveexpectationsAdaptiveexpectations:anapproachthatassumespeopleformtheirexpectationsoffutureinflationbasedonrecentlyobservedinflation.Asimpleexample:

Expectedinflation=lastyear’sactualinflationThen,theP.C.becomesslide22InflationinertiaInthisform,thePhillipscurveimpliesthatinflationhasinertia:Intheabsenceofsupplyshocksorcyclicalunemployment,inflationwillcontinueindefinitelyatitscurrentrate.Pastinflationinfluencesexpectationsofcurrentinflation,whichinturninfluencesthewages&pricesthatpeopleset.slide23Twocausesofrising&fallinginflationcost-pushinflation:inflationresultingfromsupplyshocks. Adversesupplyshockstypicallyraiseproductioncostsandinducefirmstoraiseprices,“pushing”inflationup.demand-pullinflation:inflationresultingfromdemandshocks. Positiveshockstoaggregatedemandcauseunemploymenttofallbelowitsnaturalrate,which“pulls”theinflationrateup.slide24GraphingthePhillipscurveIntheshort

run,policymakersfaceatrade-offbetween

andu.u

Theshort-runPhillipsCurveslide25ShiftingthePhillipscurvePeopleadjusttheirexpectationsovertime,sothetradeoffonlyholdsintheshortrun.u

E.g.,anincrease

ine

shiftstheshort-runP.C.upward.slide26ThesacrificeratioToreduceinflation,policymakerscan

contractagg.demand,causing

unemploymenttoriseabovethenaturalrate.Thesacrificeratiomeasures

thepercentageofayear’srealGDP

thatmustbeforegonetoreduceinflation

by1percentagepoint.Estimatesvary,butatypicaloneis5.slide27ThesacrificeratioSupposepolicymakerswishtoreduceinflationfrom6to2percent. Ifthesacrificeratiois5,thenreducinginflationby4pointsrequiresalossof45=20percentofoneyear’sGDP.Thiscouldbeachievedseveralways,e.g.reduceGDPby20%foroneyearreduceGDPby10%foreachoftwoyearsreduceGDPby5%foreachoffouryearsThecostofdisinflationislostGDP.OnecoulduseOkun’slawtotranslatethiscostintounemployment.slide28RationalexpectationsWaysofmodelingtheformationofexpectations:adaptiveexpectations:

Peoplebasetheirexpectationsoffutureinflationonrecentlyobservedinflation.rationalexpectations:

Peoplebasetheirexpectationsonallavailableinformation,includinginformationaboutcurrentandprospectivefuturepolicies.slide29Painlessdisinflation?Proponentsofrationalexpectationsbelieve

thatthesacrificeratiomaybeverysmall:Supposeu=u

nand=e

=6%, andsupposetheFedannouncesthatitwill

dowhateverisnecessarytoreduceinflation

from6to2percentassoonaspossible.Iftheannouncementiscredible,

thene

willfall,perhapsbythefull4points.Then,canfallwithoutanincreaseinu.slide30Thesacrificeratio

fortheVolckerdisinflation1981:=9.7% 1985:=3.0%yearuu

nuu

n19829.5%6.0%3.5%19839.56.03.519847.46.01.419857.16.01.1Total9.5%Totaldisinflation=6.7%slide31Thesacrificeratio

fortheVolckerdisinflationPreviousslide:inflationfellby6.7%totalof9.5%ofcyclicalunemploymentOkun’slaw:

each1percentagepointofunemploymentimplieslostoutputof2percentagepoints. So,the9.5%cyclicalunemploymenttranslatesto19.0%ofayear’srealGDP.Sacrificeratio=(lostGDP)/(totaldisinflation) =19/6.7=2.8percentagepointsofGDPwerelostforeach1percentagepointreductionininflation.slide32ThenaturalratehypothesisOuranalysisofthecostsofdisinflation,andofeconomicfluctuationsintheprecedingchapters,isbasedonthenaturalratehypothesis:Changesinaggregatedemand

affectoutputandemployment

onlyintheshortrun.Inthelongrun,

theeconomyreturnsto

thelevelsofoutput,employment,

andunemploymentdescribedby

theclassicalmodel(chapters3-8).slide33Analternativehypothesis:hysteresisHysteresis:thelong-lastinginfluenceofhistoryonvariablessuchasthenaturalrateofunemployment.Negativeshocksmayincrease

u

n,soeconomymaynotfullyrecover:Theskillsofcyclicallyunemployedworkersdeterioratewhileunemployed,andtheycannotfindajobwhentherecessionends.Cyclicallyunemployedworkersmaylosetheirinfluenceonwage-setting;insiders(employedworkers)maythenbargainforhigherwagesforthemselves.Then,thecyclicallyunemployed“outsiders”maybecomestructurall