Disequilibrium macroeconomics

Heterodox Disequilibrium macroeconomics is a tradition of research centered on the role of deviation from equilibrium in economics.

[5] Clower and Leijonhufvud argued that disequilibrium formed a fundamental part of Keynes's theory and deserved greater attention.

Disequilibrium economics received greater research as mass unemployment returned to Western Europe in the 1970s.

[20][22][23] European economists such as Edmond Malinvaud and Jacques Drèze expanded on the disequilibrium tradition and worked to explain price rigidity instead of simply assuming it.

In Malinvaud's theory, reaching the Walrasian equilibrium case is almost impossible to achieve given the nature of industrial pricing.

[26] Given Keynesian unemployment, fiscal policy could shift both the labor and goods curves upwards leading to higher wages and prices.

[22][23] In Belgium, Jacques Drèze defined equilibria with price rigidities and quantity constraints and studied their properties, extending the Arrow–Debreu model of general equilibrium theory in mathematical economics.

Introduced in his 1975 paper, a "Drèze equilibrium" occurs when supply (demand) is constrained only when prices are downward (upward) rigid, whereas a preselected commodity (e.g. money) is never rationed.

A joint paper with Pierre Dehez established the existence of Drèze equilibria with no rationing of the demand side.

Stanford's John Roberts studied supply-constrained equilibria at competitive prices;[30] similar results were obtained by Jean-Jacques Herings at Tilburg (1987, 1996).

Next, in a joint paper with Herings and others (132), the generic existence of a continuum of Pareto-ranked supply-constrained equilibria was established for a standard economy with some fixed prices.

A few years ago, one of us gave several seminars on the question of how one would test the null hypothesis that [potential data is generated] from an equilibrium as opposed to a disequilibrium specification.