Oscillations between repressed inflation and Keynesian equilibria due to inertia in decision making
Abstract In the framework of a rationed equilibrium economy as introduced by Malinvaud, the paper studies the long term evolution of the economy around the Repressed inflation—Keynesian boundary, introducing timelags in agents' response to changes in prices and wages. Depending on the distribution of timelags we show that the economy exhibits either decreasing oscillations around the boundary, eventually converging to zero, or (semi-) stable steady oscillations between the two regions. The obtained results therefore clarify the validity of the claim that a basic feature of modern economies is the cycling motion between Repressed inflation and Keynesian equilibria.