"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

The Keynesian Gospel According to Modigliani 337
Table 15.1 (continued)
(national currency; annual percentage change)
A P FIN S UK EUR-II( 1 ) EUR-12( 2 ) EU-15( 3 ) US JP
1985 5.3 22.5 10.3 7.5 7.6 6.6 6.8 6.9 4.6 2.9
1986 5.5 21.6 7.3 8.7 8.0 5.5 5.7 6.2 4.1 3.2
1987 4.0 14.4 7.7 7.0 7.4 4.7 4.8 5.4 4.2 3.3
1988 3.8 13.1 8.9 7.5 8.3 5.0 5.2 5.8 4.8 3.8
1989 4.6 15.2 10.2 11.3 9.3 5.1 5.3 6.2 3.2 4.8
1990 5.2 19.2 9.3 11.3 9.0 6.8 7.0 7.5 5.2 5.5
1981–90 5.3 19.1 9.7 8.5 8.7 7.3 7.5 7.7 5.4 4.0
1991 6.2 18.1 6.4 6.8 9.0 6.7 6.8 7.2 4.6 4.6
1992 5.8 16.3 2.2 3.9 5.3 7.7 7.8 7.2 5.3 1.3
1993 5.3 6.0 0.9 4.4 4.4 4.3 4.3 4.4 2.8 0.8
1994 3.8 5.6 3.1 4.8 3.4 3.0 3.1 3.2 2.4 1.8
1995 5.0 7.2 3.9 2.8 2.6 3.5 3.6 3.4 1.8 1.3
1996 1.5 4.9 2.7 6.8 3.7 2.9 3.0 3.2 2.5 1.1
1997 1.3 3.7 1.7 3.8 4.4 2.1 2.2 2.7 3.1 1.0
1998 3.4 3.7 4.1 3.3 4.9 1.4 1.5 2.2 4.4 -0.6
1999 2.9 4.2 2.7 1.3 5.2 2.0 2.1 2.6 4.0 -0.9
2000 2.1 5.6 4.0 7.0 4.1 2.4 2.5 2.9 4.8 0.7
1991–2000 3.7 7.4 3.2 4.5 4.7 3.6 3.7 3.9 3.6 1.1
2001 2.7 5.8 4.0 3.9 4.2 2.9 3.0 3.2 4.7 -1.2
2002 2.0 4.2 3.5 4.0 4.4 3.0 3.0 3.3 4.7 -0.1
( 1 ) PPS weighted; EU-15 excluding DK, EL, S, UK; 1961–91: including D_90.
( 2 ) PPS weighted; EU-15 excluding DK, S. UK; 1961–91: including D_90.
( 3 ) PPS weighted; 1961–91 including D_90.
III.3 The Implications of Wage-Price Rigidity
What are the implications of a rigid wage for the behavior of the price level? On
this issue Keynes, somewhat surprisingly, by and large, goes along with the classics
in assuming that producers behave as if they worked in a perfectly competitive
environment, adjusting employment to the point where the marginal product
of labor equals the real wage. This means that price equals marginal labor cost,
i.e. marginal labor input times the wage. Marginal labor input in turn is supposed
to be a non-decreasing function of output. Thus for any given output, the price P
is proportional to the wage. But the ratio P/W would be an increasing (non
decreasing) function of aggregate output. However now a day it is widely
recognized that very few markets are perfectly competitive. For non-competitive
markets a better approximation—embodied, e.g., in the so-called (short-run) fixed
“mark up” model—is to assume that the price is roughly proportional to “unit