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Endogenous business cycles and economic policy

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  • Skott, Peter

Abstract

This paper examines the dynamics of Keynesian models that incorporate feedback effects from the labor market to income distribution, investment, aggregate demand and output. A baseline version of the model can generate endogenous growth cycles, but cumulative divergence and economic collapse also become possible for plausible parameter values. Extensions of the model that include monetary and fiscal policy show greater robustness: the local instability of the stationary point leads to limit cycles (rather than complete collapse), even when large, destabilizing changes are made to parameters describing the private sector. The robustness of the general approach is reinforced by the endogeneity of the fiscal and monetary policy rules.

Suggested Citation

  • Skott, Peter, 2023. "Endogenous business cycles and economic policy," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 61-82.
    • Handle: RePEc:eee:jeborg:v:210:y:2023:i:c:p:61-82
    DOI: 10.1016/j.jebo.2023.04.002
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    Cited by:

    1. Peter Skott, 2024. "Conflict inflation: Keynesian path dependency or Marxian cumulation?," Working Papers PKWP2406, Post Keynesian Economics Society (PKES).

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