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Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model

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  • Federico Bassi

Abstract

In standard new consensus macroeconomics models, the impact of shocks disappears until the economy reaches a time-independent steady-state equilibrium. Introducing sunk costs and capital indivisibilities in capacity adjustment decisions implies the rejection of asymptotic stability and a reconsideration of the relevance and usefulness of traditional steady-state analysis based on a fixed and exogenous ‘center of gravity’. Moreover, effective demand and Keynesian discretionary policies regain a central role in economic policy by determining the transient equilibriums that emerge endogenously.

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  • Federico Bassi, 2016. "Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model," Review of Political Economy, Taylor & Francis Journals, vol. 28(3), pages 313-335, July.
    • Handle: RePEc:taf:revpoe:v:28:y:2016:i:3:p:313-335
    DOI: 10.1080/09538259.2016.1199397
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