Dynamic Factor Demand in a Rationing Context

This book develops a macroeconomic disequilibrium model for Germany, focusing on firms' behavior and the dynamic adjustment of employment and investment, highlighting significant labor and capital underutilization and supply constraints.

Dynamic Factor Demand in a Rationing Context presents a comprehensive macroeconomic disequilibrium model specifically tailored for the Federal Republic of Germany. The foundation of this model is built upon a microeconomic framework that examines firm behavior, enabling the derivation of optimal dynamic adjustments in employment and investment. By integrating a detailed aggregation procedure, the model effectively transitions from individual firm dynamics to broader macroeconomic relationships.

A notable aspect of the model is its emphasis on dynamic adjustment within the firm, particularly through a novel approach that accounts for delayed adjustments in both employment and investment. This feature allows for a more realistic representation of how firms respond to economic conditions over time. The model is rigorously estimated using macroeconomic data from Germany, which provides valuable insights into the underlying economic dynamics.

The estimation results reveal significant underutilization of labor and capital, highlighting the critical role of supply constraints in both imports and exports. One of the key findings of the study is the slow adjustment of employment and investment, which has profound implications for the macroeconomic landscape of Germany, particularly concerning the persistent high unemployment rates experienced during the 1980s. Overall, this book contributes to the understanding of dynamic factor demand in the context of economic rationing, offering valuable perspectives for policymakers and economists alike.