Dynamic Disequilibrium Model and Micro-Foundation.

Abstract

This paper studies a dynamic disequilibrium model that integrates the New IS-LM model and the Iwai model. This model is consisted of 4 equations. Adjusted Dynamic IS Curve, Disequilibrium Inflation AS Curve, Disequilibrium Phillips Curve and the Talyor Rule. This model is an expanded edition of the New ISLM model by using the concept of normal demand-supply ratio and fundamental equations of Product and Labor markets. This model suggests that prices are given by rational expectation and noises. We expand this dynamic disequilibrium model to Hybrid model.