Building on The Dynamics of Keynesian Monetary Growth by Chiarella and Flaschel (2000), this 2005 book is a key contribution to business cycle theory, setting out a disequilibrium approach with ...gradual adjustments of the key macroeconomic variables. Its analytic study of a deterministic model of economic activity, inflation and income distribution integrates elements in the tradition of Keynes, Metzler and Goodwin (KMG). After a qualitative analysis of the basic feedback mechanisms, the authors calibrate the KMG model to the stylized facts of the business cycle in the U.S. economy, and then undertake a detailed numerical investigation of the local and global dynamics generated by the model. Finally, topical issues in monetary policy are studied in small macromodels as well as for the KMG model by incorporating an estimated Taylor-type interest rate reaction function. The stability features of this enhanced model are also compared to those of the original KMG model.
We extend Goodwin's distributive cycle by effective demand forces and endogenous process innovations, driven by the evolution of the employment rate of workers in the sphere of production and its ...consequences for the income distribution between capital and labour. We show that the extended dynamics can create persistent fluctuations in employment, income distribution and productivity growth if their balanced growth path is surrounded by an unstable multiplier–accelerator process, a basic variant of its well-known Goodwin formulation. Our integration of global stability through a Marxian reserve army mechanism, with locally destabilising Keynesian demand and Schumpeterian process innovations, provides a basic model of what Goodwin describes as the MKS system approach to the understanding of the evolution of capitalism.
In the present paper, we study how the dynamics of Foley's model may be affected by the introduction of a money wage Phillips curve with a perfect spill-over of price inflation on wage inflation. The ...upshot is a model with endogenous price and wage dynamics with unstable equilibrium, meaning that the integration of the Foley liquidity/profit rate cycle with the Goodwin cycle requires state intervention to stabilize the economy. With this approach, we show that Foley's initial insight is consistent with flexible prices and wages only in the presence of a rule for money supply. The stable equilibrium, in this case, may degenerate into a limit cycle if the growth rate of liquidity increases to a sufficient degree. To illustrate this result, we carry out the analysis both regarding general functions as well as in terms of a particular example.
We introduce the results of a non-parametric estimate of the US wage-Phillips Curve into a simplified version of the model of the wage-price spiral by Flaschel and Krolzig (2008). Making use of ...Okun's law, the non-linearity in the wage inflation-employment relation translates into a non-linearity in the so-called 'distributive curve' of the economy. Exploiting the observed non-linearity in extending an otherwise standard demand-distribution model (Taylor
2004
), we provide a dynamical analysis both in wage-led and profit-led effective demand regimes. In a profit-led scenario, shown to be the empirically relevant case for the US economy, there are two stable equilibria of Goodwin (
1967
) growth cycle type, identified as a stable depression and a stable boom, and a saddle-path stable equilibrium in between them. Both stable steady states are surrounded by trajectories that cycle counterclockwise around their basins of attraction. The obtained type of growth fluctuations can be verified by a long phase cycle estimation for the US economy using a method developed by Kauermann, Teuber and Flaschel (
2008
).
An intense debate has played out in recent years regarding how to implement a so-called "flexicurity system"-a labor market reform that combines flexibility, particularly in the hiring and firing ...process of firms, with security in the employment and income of the workforce. In Flexicurity Capitalism, Flaschel and Greiner lay out the macroeconomic structure of this system, providing the detailed mathematical models necessary to ponder seriously how such a system can work. Their book rests on three pillars of thought: Marx, Kalecki-Keynes, and Schumpeter. The authors highlight the relevant contributions from the work of each and build upon it. They in turn provide a basic framework for flexicurity capitalism and then compare their economic system to pure capitalism to determine the best and most practical way forward. Their scope is ambitious: to address the shortcomings of a narrow focus on mass unemployment, selective-schooling systems, property rights based solely on ownership without qualified business decision-making expertise, financial markets that do not of channel savings properly into real investment, and innovations that ignore human rights or moral sentiments. Flaschel and Greiner's Flexicurity Capitalism provides serious discussion and feasible mathematical models necessary to consider moving in this direction. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780199751587/toc.html
A baseline integration of commercial banks into the disequilibrium framework with behavioral traders of Charpe et al. (2011, 2012) is presented. At the core of the analysis is the impact the banking ...sector exerts on the interaction of real and financial markets. Potentially destabilizing feedback channels in the presence of imperfect macroeconomic portfolio adjustment and heterogeneous expectations are investigated. Given the possible financial market instability, various policy instruments have to be applied in order to guarantee viable dynamics in the highly interconnected macroeconomy. Among those are open market operations reacting to the state-of-confidence in the economy and Tobin-type capital gain taxes. The need for policy intervention is even more striking, as the banking sector is modeled in a rather stability enhancing way, fulfilling its fundamental tasks of term transformation of savings and credit granting without engaging in investment activities itself.
The macroeconomic development of most major industrial economies is characterised by boom-bust cycles. Normally such boom-bust cycles are driven by specific sectors of the economy. In the financial ...meltdown of the years 2007–9 it was the credit sector and the real-estate sector that were the main driving forces. This book takes on the challenge of interpreting and modelling this meltdown. In doing so it revives the traditional Keynesian approach to the financial-real economy interaction and the business cycle, extending it in several important ways. In particular, it adopts the Keynesian view of a hierarchy of markets and introduces a detailed financial sector into the traditional Keynesian framework. The approach of the book goes beyond the currently dominant paradigm based on the representative agent, market clearing and rational economic agents. Instead it proposes an economy populated with heterogeneous, rationally bounded agents attempting to cope with disequilibria in various markets.
ABSTRACT
Following an analysis of the relation between a standard Steindlian model of stagnation and Steindl’s own analysis, we modify the standard model by introducing endogenous changes in the ...mark‐up and a reformulation of the investment function. These extensions, which address significant weaknesses of the standard model, find support in Steindl’s writing and leave intact some of Steindl’s key results. In a further extension, we add a labour market and analyse the stabilizing influence of a Marxian reserve‐army mechanism. The implications of the extended model for the effects of increased oligopolization are largely in line with Steindl’s predictions.
We reformulate the traditional AS-AD growth model of the Neoclassical synthesis, stage I, as a disequilibrium approach to aggregate supply analysis, with sticky wages, sticky prices, myopic perfect ...foresight on current inflation rates, and adaptively formed medium-run expectations concerning the investment and the inflation climate. Both LM curve and an interest rate policy rule are considered. The resulting nonlinear 5D model of labor and goods market disequilibrium avoids striking anomalies of the traditional Neoclassical synthesis AS-AD model. It exhibits instead Keynesian feedback dynamics proper with asymptotic stability for low adjustment speeds and with cyclical loss of stability when some adjustment speeds are sufficiently large. In such cases, downward money wage rigidities serve to make the overall dynamics bounded and thus viable. We thus obtain a baseline D(is equilibrium)AS-AD model with Keynesian feedback channels with a rich set of stability/instability features as sources of the business cycle. The outcomes of the model stand in stark contrast to those of the currently fashionable (closely related) model of the New Keynesian alternative.
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