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Neoclassical stability and Keynesian instability: A two‐sector disequilibrium approach

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  • Shogo Ogawa

Abstract

In this study, we construct a simple disequilibrium growth model to explore the dynamic property of effective demand. This study’s main concern is the effect of the quantity constraint: How do the quantities of consumption and investment goods demand and the productive capacity affect capital accumulation? To answer this, we build a two‐sector growth model with quantity constraints. Our model has multiple steady states in classical (supply‐led) regime and Keynesian (demand‐led) regime. The former is locally stable, but the latter is unstable. The instability of Keynesian steady state is amplified by the multiplier effect and shows how deep depression occurs.

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  • Shogo Ogawa, 2022. "Neoclassical stability and Keynesian instability: A two‐sector disequilibrium approach," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 481-513, May.
    • Handle: RePEc:bla:metroe:v:73:y:2022:i:2:p:481-513
    DOI: 10.1111/meca.12372
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    Cited by:

    1. Ogawa, Shogo, 2022. "Monetary growth with disequilibrium: A non-Walrasian baseline model," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 512-528.

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