Capacity Utilization and Market Power

in Journal of Economic Dynamics and Control (1997), 22

We propose a theoretical macroeconomic model where capacity underutilization follows from idiosyncratic demand uncertainty at the time monopolistic firms must choose their productive capacity. After their ... [more ▼]

We propose a theoretical macroeconomic model where capacity underutilization follows from idiosyncratic demand uncertainty at the time monopolistic firms must choose their productive capacity. After their investment decision, firms facing a low demand will typically prefer to run excess capacities rather than reduce their profit margin; firms at full capacity will respond to demand fluctuations solely by price adjustments. We show that the proportion of firms with idle capacities influences crucially the short-run response of the economy to exogenous disturbances and, in particular, the relative importance of price and quantity adjustments. [less ▲]

Internal Finance and Capital Accumulation in a Dynamic General Equilibrium Model with Credit Constraints

in Louvain Economic Review - Recherches Economiques de Louvain (1996), 62(2-3), 255-86

Investment and the Inflation-Unemployment Trade-off in a Macroeconomic Rationing Model with Monopolistic Competition

in European Economic Review (1987), 31(3), 781-815

This paper develops a stylized macroeconomic rationing (or disequilibrium) model where the three well-known regimes of Keynesian Unemployment, Classical Unemployment and Repressed Inflation’ are ... [more ▼]

This paper develops a stylized macroeconomic rationing (or disequilibrium) model where the three well-known regimes of Keynesian Unemployment, Classical Unemployment and Repressed Inflation’ are explicitly distinguished and wherein prices and the capital stock are endogenously determined by profit maximizing firms. The framework is one of monopolistic competition. The macroeconomic price and employment relationships are derived by explicit aggregation over individual firms. Because different firms can be in different regimes, the three regimes mentioned above always coexist at the aggregate level and do so in proportions that may vary through time. This is exactly the picture conveyed by business survey results. As a result of competition, the number of firms, hence the aggregate production capacity, adjusts in the long run until pure profits are equal to zero. [less ▲]