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Long-run effective demand and residential investment: a Sraffian supermultiplier based analysis

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  • Lucas Teixeira
  • Gabriel Petrini

Abstract

This paper builds a fully specified parsimonious Sraffian supermultiplier stock-flow consistent model (SSM-SFC) with two non-capacity-creating autonomous expenditures: residential investment and capitalist consumption. Our model represents a closed economy without a government sector with workers and capitalist households and only the latter are not credit-constrained. The introduction of residential investment implies that our SSM-SFC model has two real assets: firms’ productive capital and households’ real estate. In our model, the residential investment growth rate responds to changes in house price inflation, and capitalist consumption is financed out of financial wealth. The numerical simulation experiments show that our model adheres to the main results of the standard Sraffian supermultiplier growth model. As a particular result, an increase in the residential investment growth rate implies a decrease in real estate share in total real assets. Our numerical simulations can reproduce some stylised facts such as residential investment leading the business cycle and capital accumulation and a clockwise pattern between non-capacity creating autonomous expenditures and capacity utilisation rate.

Suggested Citation

  • Lucas Teixeira & Gabriel Petrini, 2023. "Long-run effective demand and residential investment: a Sraffian supermultiplier based analysis," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(1), pages 72-99, January.
    • Handle: RePEc:elg:rokejn:v:11:y:2023:i:1:p72-99
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    Cited by:

    1. Barbieri Góes, Maria Cristina, 2023. "A tale of three prices: Monetary policy and autonomous consumption in the US," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 115-127.

    More about this item

    Keywords

    residential investment; Sraffian supermultiplier; asset inflation; stock-flow consistent approach;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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