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FACTOR SUBSTITUTION, RATIONAL EXPECTATIONS, AND THE EFFECTS OF COMMODITY PRICE SHOCKS ON EMPLOYMENT AND INVESTMENT
Author(s) -
MORK KNUT ANTON
Publication year - 1985
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1985.tb01781.x
Subject(s) - economics , substitution (logic) , investment (military) , constraint (computer aided design) , elasticity of substitution , production (economics) , wage , capital (architecture) , microeconomics , commodity , rational expectations , econometrics , monetary economics , labour economics , mechanical engineering , market economy , archaeology , politics , computer science , political science , law , history , programming language , engineering
Within an aggregate model with three inputs to production, the paper studies the effects of an increase in the price of one of the inputs, called commodities. No restrictions are placed on the production possibility constraint, and expectations are assumed to be formed rationally. After considering the effects on the demand for the two remaining inputs, labor and capital, the paper analyzes the effects on employment under a wage rigidity constraint. A dynamic formulation is used to analyze the effects on investment, which are found to depend weakly and sometimes perversely on partial substitution parameters.