Aggregate Demand, Harrod’s Instability and Fluctuations

Ferri, Piero; Fazzari, Steven M.; Greenberg, Edward; Variato, Anna Maria Grazia

doi:10.1007/s10614-011-9277-8

Cited by 5 publications

(3 citation statements)

References 14 publications

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“…14 The instability property is generic to the Harrod model structure. It does not depend on parameter values as long as the rule for expectation formation in equation 2.12holds (see Ferri et al 2011, for a general discussion). And (2.12) seems reasonable.…”

Section: Expectations and Instabilitymentioning

confidence: 99%

Aggregate demand, instability, and growth

Fazzari¹,

Ferri²,

Greenberg³

et al. 2013

Review of Keynesian Economics

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This paper considers a puzzle in growth theory from a Keynesian perspective. If neither wage and price adjustment nor monetary policy are effective at stimulating demand, no endogenous dynamic process exists to assure that demand grows fast enough to employ a growing labor force. Yet output grows persistently over long periods, occasionally reaching approximate full employment. We resolve this puzzle by invoking Harrod's instability results. Demand grows because it follows an explosive upward path that is ultimately limited by resource constraints. Downward demand instability is contained by introducing an autonomous component to aggregate demand.

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Section: Expectations and Instabilitymentioning

confidence: 99%

Aggregate demand, instability, and growth

Fazzari¹,

Ferri²,

Greenberg³

et al. 2013

Review of Keynesian Economics

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“…As in Fazzari, et al (2013), however, the inherent instability of 2 The conventional view that Keynesian results depend on nominal rigidity and that nominal adjustment eliminates demand constraints is ironic considering Keynes's own arguments in chapter 19 of the General Theory. For summaries of theoretical and empirical problems with the assumption that nominal adjustment renders demand irrelevant in the "long run," see Fazzari et al (1998), Palley (2008), and Ferri et al (2011) and the research cited in these articles. Bhaduri (2006, p. 70) makes similar arguments in the specific context of growth theory.…”

Section: Introductionmentioning

confidence: 99%

Demand-led growth and accommodating supply

Fazzari

Ferri

Variato

2020

Cambridge Journal of Economics

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We model of demand-led growth with endogenous adjustment of labour supply and productivity, an approach that reconciles Harrod’s warranted rate of demand growth with supply. The model delivers a range of growth paths and unemployment rates rather than a single ‘natural rate’. Theoretically, the steady-state growth path may be dynamically stable or unstable, but empirical calibration favours stability. We show analytically that if demand dynamics are stable, supply will converge to the demand-determined growth path. While a minimum unemployment rate ultimately imposes a supply constraint on growth, empirical results show that a wide range of growth rates are feasible across different demand regimes. The results explain how economies can become trapped with low growth due to weak demand or fiscal austerity and suggest policy responses to stagnant demand.

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“…The relevant literature is not void in this quest; Slowly and rather quietly research in this direction has made considerable progress. Although these efforts started somewhat earlier than the breakout of the financial crisis in 2009, three notable contributions since then are the ones by Dutt (2010), Ferri et al (2011) and Fazzari et al (2013). If one has to single out only one common element in the models they present, this is none other than capacity utilization.…”

Section: Linking Potential Supply and Demand For Outputmentioning

confidence: 99%

Demand adjusted capital input and potential output in the context of U.S. economic growth

Bitros

2020

The Journal of Economic Asymmetries

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Two alternative measures of demand adjusted capital input for the U.S. non-farm private business sector are derived and their differential impacts on the potential supply of output are compared to those obtained using the unadjusted index of capital input published by the Congressional Budget Office (CBO). The results show that, allowing for the demand pressure on the fixed assets of firms, leads to three effects. It raises the level of estimated potential output well above CBO's estimates; with the exception of the 1990s, the estimated growth rates turn out to be higher than those computed by CBO; and, lastly, the long term trend of the growth rates with and without the demand adjustment to the capital input is sloping downwards. The latter finding was not unexpected since aggregate demand, as reflected in the utilization rate of fixed assets by firms, has been trending downwards throughout the postwar period. Drawing on these findings it is concluded that the path to secular stagnation that the U.S. economy is following in the postwar period is not due solely to headwinds on the supply side. To some degree, perhaps significant, the deceleration in the expansion of productive capacity as well as in the intensity of its utilization is due to the declining long term aggregate demand.

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Aggregate Demand, Harrod’s Instability and Fluctuations

Abstract: Instability, Nonlinearities, Fluctuations, Rates of interest, Heterogeneous expectations, E32, E12, E43,

Cited by 5 publications

References 14 publications

Aggregate demand, instability, and growth

Aggregate demand, instability, and growth

Demand-led growth and accommodating supply

Demand adjusted capital input and potential output in the context of U.S. economic growth

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