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How Short is the Short Run in the Neo-Kaleckian Growth Model?

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  • Ettore Gallo

    (Department of Economics, New School for Social Research)

Abstract

The paper provides an analytical solution to the differential equation that regulates the motion of the neo-Kaleckian model in the short run. After presenting a simple open economy neo-Kaleckian model with government activity, the paper analytically derives an expression for the time of adjustment, defined as the time required for the system to make a k-percent adjustment from one steady-state to another. The solution shows that there is an inverse relationship between the strength of the Keynesian stability condition and the the time of adjustment. Last, the model is calibrated for the US, showing that vicinity of the new equilibrium is reached after a period of about 4 quarters. By formally analyzing the out-of-equilibrium trajectory of the neo-Kaleckian model, this contribution moves away from the method of comparative dynamics and provides a historical-time representation of the model's traverse.

Suggested Citation

  • Ettore Gallo, 2021. "How Short is the Short Run in the Neo-Kaleckian Growth Model?," Working Papers 2117, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2117
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    References listed on IDEAS

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    Cited by:

    1. Ettore Gallo, 2022. "When is the long run?—Historical time and adjustment periods in demand‐led growth models," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1155-1178, November.
    2. Ettore Gallo & Mark Setterfield, 2022. "Historical Time and the Current State of Post-Keynesian Growth Theory," Working Papers 2204, New School for Social Research, Department of Economics.

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    Keywords

    Neo-Kaleckian Model; time; adjustment period; traverse; effective demand; growth; distribution;
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