Autonomous demand, multiple equilibria and unemployment dynamics
- PDF / 1,021,560 Bytes
- 15 Pages / 439.37 x 666.142 pts Page_size
- 60 Downloads / 198 Views
Autonomous demand, multiple equilibria and unemployment dynamics Piero Ferri1 · Fabio Tramontana2 Received: 24 February 2020 / Accepted: 10 October 2020 © The Author(s) 2020
Abstract The paper presents a medium-run growth model driven by autonomous demand, where aggregate demand and supply interact and unemployment is present and plays different roles. In particular, it generates a feedback from supply to aggregate demand rooted in the presence of heterogeneous consumers and an uncertain environment. Two are the main consequences of this approach. The first is that multiple equilibria can be generated. The second is that equilibria may have different stability properties. In this perspective, growth becomes a dynamic process where initial conditions matter and history plays an important role. Keywords Medium-run growth · Autonomous demand · Endogenous supply · Unemployment · Instability · The reconciliation process · Multiple equilibria · Simulations JEL Classification E32 · E12 · J2 · O40 · C63
1 Introduction There is no doubt that the Great Recession has stimulated the reconsideration of multiple equilibria in the literature. The idea of an economy having both “good” and “bad” equilibria has become appealing in almost every paradigm. So, while Geanakoplos (2003, 2010) stresses the importance of multiple equilibria characterized by the presence of agents with different degrees of liquidity within a General Equilibrium approach, Boissay et al. (2016) pursue the same objective by focusing on the banking
We wish to thank S. Fazzari (Washington University), A. Crisitini and A. Variato (University of Bergamo) for stimulating discussions. We also wish to thank two anonymous referees for helpful suggestions.
B
Fabio Tramontana [email protected]
1
University of Bergamo, Bergamo, Italy
2
Catholic University of the Sacred Heart, Milan, Italy
123
P. Ferri, F. Tramontana
crisis but within a DSGE model. In the same paradigm, Basu and Bundick (2017) study the relationship between uncertainty and multiple equilibria, while Aruoba and Schorfheide (2013) consider the presence of two equilibria in an economy marked by a zero lower bound in the rate of interest. Finally, Takahashi and Okada (2020), within an agent-based approach, present a dynamic model characterized by the presence of two equilibria based upon seller’s and buyer’s markets. Also the Post-Keynesian field has been affected by the events of the economy, even though the presence of multiple equilibria has a long and persistent story (see Dutt 1997) rooted in the idea that growth is a history dependent phenomenon (see Robinson 1956). Many of the new contributions, above all those among the Kaleckian Post-Keynesians (KPK), have insisted on the role that income distribution can have in generating multiple equilibria within a growth model (see Assous and Dutt 2013). In the present paper, we try to investigate another route, not necessarily an alternative one, leading to multiple equilibria by means of a nonlinear relationship between unemployment and
Data Loading...
