A Macro Disequilibrium Model for Switzerland

Considerable work has been done in recent years on estimating macroeconomic disequilibrium models. Important examples are Sneessens (1983), Kooiman and Kloek (1985), Sneessens and Dreze (1986), Lambert (1988) and Laroque (1988). The basic notion in these models is that prices and wages adjust too slowly to clear markets permanently so that agents on the 'long side of a market may get rationed and revise their trade plans, causing thus quantity spillovers across markets. At first glance, in view of official unemployment rates that hardly ever exceeded 1%, the attempt to construct such a model for Switzerland may appear as a somewhat far-fetched exercise. Contrasting with low unemployment, however, output and employment have in fact been more volatile in Switzerland than in the majority of other countries. At the same time, prices and wages moved rather sluggishly. Not surprisingly then, many econometric studies have had difficulty in describing developments over longer periods of time with stable parameters. Against this background, the potential of a disequilibrium model that allows for endogenous transitions between different regimes is quite obvious.