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A Descriptive Growth Model with Unemployment

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  • Pingle, Mark
  • Guerrero, Federico
  • Mahmoudi, Mina
  • Wuthisatian, Rattaphon

Abstract

We modify the standard descriptive growth model to incorporate what Keynes (1936) called the “essence” of his general theory. The essence is that exogenous changes in investment cause changes in employment and unemployment. We implement this idea by assuming the path for the capital growth rate is exogenous, which implicitly indicates that the significant fluctuations in investment do not result from rational calculation but rather result from what Keynes labelled “animal spirits.” Testing the Keynes hypothesis using post-WWII U.S. data, we find that changes in investment Granger-cause changes in unemployment but the reverse is not supported by the data.

Suggested Citation

  • Pingle, Mark & Guerrero, Federico & Mahmoudi, Mina & Wuthisatian, Rattaphon, 2023. "A Descriptive Growth Model with Unemployment," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 482-500.
    • Handle: RePEc:eee:jeborg:v:212:y:2023:i:c:p:482-500
    DOI: 10.1016/j.jebo.2023.05.026
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    More about this item

    Keywords

    Growth theory; unemployment; essence of Keynes; economic fluctuations;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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