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An Old-Keynesian Note on Destabilizing Price Flexibility

Tobin's (1975) macrodynamic model on 'recession and depression' is extended by introducing two separate adjustment rules for money wages and the price level. It turns out that sluggish prices and, under an additional assumption, also sticky wages are favourable for local stability of the long-run equilibrium, while a high degree of flexibility tends to be destabilizing. In addition, a disposition to cyclical behaviour is indicated.
Year of publication:
2000
Authors: Flaschel, Peter ; Franke, Reiner
Published in:
Review of Political Economy. - Taylor & Francis Journals, ISSN 0953-8259. - Vol. 12.2000, 3, p. 273-283
Publisher: Taylor & Francis Journals
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