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An elementary business cycle mechanism: learning from Harrod and Kaldor

An elementary business cycle mechanism: learning from Harrod and Kaldor AbstractDrawing on Harrod, Kalecki and Kaldor, this paper seeks to revive the view that ceteris paribus firms reduce investment if they have already built up high capacities relative to their assessment of the normal market potential. This reaction establishes a fundamental stabilizing mechanism for the economy. The paper adapts the idea to the growth context of a neo-Kaleckian baseline model, where its destabilizing Harrodian sentiment adjustments are specified in a canonical and microfounded way that introduces a natural nonlinearity into the global dynamics. Supposing local instability, the resulting two-dimensional system is shown to generate persistent self-sustaining cyclical behaviour. In addition, the model is numerically calibrated to period and amplitude of the US business cycle. On the whole, based on an old and almost forgotten conception, the paper advances a most elementary approach to business cycle modelling. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

An elementary business cycle mechanism: learning from Harrod and Kaldor

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References (20)

Publisher
de Gruyter
Copyright
©2019 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1558-3708
eISSN
1558-3708
DOI
10.1515/snde-2017-0106
Publisher site
See Article on Publisher Site

Abstract

AbstractDrawing on Harrod, Kalecki and Kaldor, this paper seeks to revive the view that ceteris paribus firms reduce investment if they have already built up high capacities relative to their assessment of the normal market potential. This reaction establishes a fundamental stabilizing mechanism for the economy. The paper adapts the idea to the growth context of a neo-Kaleckian baseline model, where its destabilizing Harrodian sentiment adjustments are specified in a canonical and microfounded way that introduces a natural nonlinearity into the global dynamics. Supposing local instability, the resulting two-dimensional system is shown to generate persistent self-sustaining cyclical behaviour. In addition, the model is numerically calibrated to period and amplitude of the US business cycle. On the whole, based on an old and almost forgotten conception, the paper advances a most elementary approach to business cycle modelling.

Journal

Studies in Nonlinear Dynamics & Econometricsde Gruyter

Published: Dec 18, 2019

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