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Micro‐Flexibility and Macro‐Rigidity: Some Notes on Expectations and the Dynamics of Aggregate Supply
Author(s) -
Bruno Sergio
Publication year - 1987
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.1987.tb00116.x
Subject(s) - macro , economics , boom , aggregate demand , aggregate supply , rigidity (electromagnetism) , restructuring , price elasticity of supply , ex ante , microeconomics , macroeconomics , price elasticity of demand , monetary policy , engineering , computer science , finance , structural engineering , environmental engineering , programming language
The high macro supply elasticity experienced by industrialised countries during the second post‐war boom is not explainable as the aggregate effect of current variations of companies’output in response to current variations of demand. A firm cannot adapt rapidly its output to higher demand unless it has decided fairly in advance to expand its productive capacity. Macro elasticity depends thus on the existence of ex ante excess capacity, built on the basis of expectations. The post‐war boom is thus explained in terms of a virtuous sequence expectations‐decisions‐events. This approach helps in understanding the inversion of the expansionary phase to one of stag‐flation, the failure of Keynesian policies and the subsequent industrial restructuring which gave rise to the present employment squeeze. Flexibility is something which depends on the relationships between individual expectations and decisions and their systemic results; the presently pursued micro‐flexibility is at high risk of producing increasing macro‐rigidity.