Title: On the Optimal Rate of Structural Adjustment
Abstract: The first concern of this paper is the time dimensIon of the adjustment process in an economic system characterized by various forms of monopolistic competition. We attempt to define notions, and measures, of stability that capture the macroeconomic con sequences of shocks and disturbed price signalling in markets. We want to know if, when, where:. and how an economy settles down on a growth path and to what extent the answer depends upon the nature of the adjustment process itself. It appears that a bounded space that is a subset of another bounded space is a more useful concept to deal with our problem than the conventionai equilibrium and stability definitions. The bo und s should be considered as welfare determining and as such they will be entirely arbitrary until we have determined how national welfare depends on the variation in and the predictive uncertainty assoriated with a chosen set of welfare variables. Optimal adjustment in our sense involves both (a) the time it takes to get back to a steady growth path and (b) the loss (or gain) in longterm growth due to the adjustment process itself. The second concern of this paper is to demonstrate through micro simulation experiments how stability in that sense depends on the structural diversity of the economy. The paper is mainly exploratory, aiming at hypothesis formulation. Only a few of the experiments used in this study have been properly designed to allow strong empirical or theoretical conclusions in this context. We have found tentatively: (a) that the less structural diversity (productivity or profitability) across mirro units (firms) in the initial state of the economy, the less stable the macro economy vis a vis externally administered price shocks.
Publication Year: 1982
Publication Date: 1982-12-01
Language: en
Type: preprint
Access and Citation
Cited By Count: 18
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot