Re: GT and microfoundations

["David Dequech" <dequech@xxxxxxxxxxxxxx>]

Dear Per and others,

If Per saw in my previous "a 'New Keynesian' argumentation -- that imperfect
competition implies price inflexibilities, which opens up the possibility of
unemployment"-, let me clarify that I did not mean to give this impression,
and I'm sorry if I did. Actually, I meant that for people like Paul the form
of competition matters because they want to show the possibility of
unemployment even with pure competition and the resulting price flexibility.
Incidentally, let me add that some New Keynesians - especially those in the
Greenwald-Stiglitz strand - don't see wage and price rigidity as the
ultimate cause of unemployment.

Per also referred to Sven's argument that uncertainty leads to price-wage
stickness. In this respect, I think it's important, again, to make the
purposes of the analysis clear. Uncertainty can be used in different ways in
this context. It can be used to show that, even with pure competition, wage
and price flexibility may not eliminate unemployment; and it can be used to
reinforce the argument that pure competition would not last for long. Again,
it's important to distinguish between two issues: the possibility of
unemployment under pure competition and the possibility of a long-lasting
pure competition.
I personally see as valid the effort of showing the possibility of
unemployment under pure competition. This, I understand,  is the purpose of
Paul's line of argument. For purposes other than that, I think it may be
perfectly valid to assume other forms of competition.

Cheers,
David Dequech