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Instability, stationary utilization and effective demand: A structuralist model of endogenous cycles

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  • Schoder, Christian

Abstract

Within the framework of an aggregative macro model with equilibrating output adjustment, Harrodian instability and a constant long-run utilization rate are reconciled with the principle of effective demand by endogenizing the capacity output-capital ratio. As stabilizing forces, distribution and debt dynamics are considered. Introducing non-linearities in the investment function, our model generates limit cycles consistent with empirical observations for the US, i.e. counter-clockwise in the utilization-wage share and utilization-debt space. We argue that with an endogenous capacity-capital ratio the principle of effective demand, the paradox of thrift as well as the paradox of cost may hold despite a constant long-run utilization rate.

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  • Schoder, Christian, 2014. "Instability, stationary utilization and effective demand: A structuralist model of endogenous cycles," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 10-29.
    • Handle: RePEc:eee:streco:v:30:y:2014:i:c:p:10-29
    DOI: 10.1016/j.strueco.2014.02.001
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    Cited by:

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    5. Murakami, Hiroki & Zimka, Rudolf, 2020. "On dynamics in a two-sector Keynesian model of business cycles," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).
    6. Attilio Trezzini, 2021. "Harrodian Instability: An Unhelpful Analytical Concept," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(2), pages 320-336, June.
    7. Rudiger von Arnim & Jose Barrales, 2015. "Demand-driven Goodwin cycles with Kaldorian and Kaleckian features," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 351-373, July.
    8. Christian Schoder, 2015. "Methodological, internal and ontological inconsistencies in the conventional micro-foundation of post-Keynesian theory," Working Papers 1518, New School for Social Research, Department of Economics.
    9. Schoder, Christian, 2017. "Are Dynamic Stochastic Disequilibrium models Keynesian or neoclassical?," Structural Change and Economic Dynamics, Elsevier, vol. 40(C), pages 46-63.
    10. Reiner Franke, 2017. "What output-capital ratio to adopt for macroeconomic calibrations?," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(2), pages 208-224, March.

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    More about this item

    Keywords

    Harrodian instability; Stationary capacity utilization; Effective demand; Endogenous capacity-capital ratio; Endogenous cycles;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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