A dynamic general disequilibrium model of a sequential monetary production economy

A discrete, deterministic, economic model, based on the framework of non-Walrasian or disequilibrium economics, is presented. The main feature of this approach is the presence of non-clearing markets, where not all demands and supplies are satisfied and some agents may be rationed. The model is characterized by three agents (i.e., a representative firm, a representative consumer, and a central bank), three commodities (i.e., goods, labour and money, each homogeneous) and three markets for their exchange. The imbalance between demand and supply in each market determines the dynamics of price, nominal wage and nominal interest rate. The central bank provides the money supply according to an operating target interest rate that is fixed accordingly to Taylor's rule. The model has been studied by means of computer simulations. Results pointed out the presence of business cycles that can be controlled by proper policies of the central bank. (c) 2005 Elsevier Ltd. All rights reserved.