Regime Transitions, Spillovers and Buffer Stocks : Analysing the Swiss Economy by Means of a Disequilibrium Model

This book presents an econometric modeling approach for analysing macroeconomic disequilibria, focusing on the market for goods and labor and the spillovers between these markets transmitted through firms' decisions in the production sphere. The macroeconomic markets are treated as heterogeneous aggregates, consisting of a multitute of micro markets on which demand/supply ratios differ. Disequilibrium models have been under attack because they neglect that inventories enable firms to smooth production over the cycle, but the author argues that buffer stocks (output inventories, unfilled orders) should be accounted for within the disequilibrium framework, giving rise to a dynamic modification rather than a fundamental invalidation of rationing and spillover effects. The model developed in this book combines traditional Keynesian-type analysis with supply-side considerations and at the same time allows for micro-level imbalance. The resulting econometric structure is inherently nonlinear, reflecting that the response of economic activity to demand-side and supply-side factors varies over the cycle, depending on the aggregate mix of regimes. The model is estimated with quarterly data for Switzerland. Various simulation experiments clearly demonstrate the potential of this type of model for empirical business cycle analysis and policy discussions