Macroeconomic Analysis by Dirk Niepelt

Author:Dirk Niepelt [Niepelt, Dirk]
Language: eng
Format: epub
Tags: Business & Economics, macroeconomics; economics; consumption; economic policy; dynamic optimization; frictions; labor supply; risk; asset returns; asset prices; growth; business cycles; open economy; money; price setting; price rigidity; optimal policy; time consistent policy; government; modeling;, Macroeconomics, economics
ISBN: 9780262043472
Google: 3GLGDwAAQBAJ
Publisher: MIT Press
Published: 2019-12-31T00:26:15.019551+00:00

10.3.3  Market Clearing

Market clearing on the markets for labor and capital requires

Firm optimality and labor market clearing implies that the capital–labor ratio of each intermediate good producer equals kt(εt−1)/Lt(εt) with Lt(εt) = 1 −xt(εt). Due to constant returns to scale, this implies

Accordingly, the economy’s resource constraint satisfies

where Δt(εt) denotes the price dispersion measure defined in section 10.2. Price dispersion enters the resource constraint in the same way as lower productivity.

The nominal bond is in zero net supply, Bt(εt) = 0, as all households are alike.

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