Growth cycles: a response to Peter Skott

I respond to Skott (2016) main comments on Lavoie (2016), which are: first, when calibrating with plausible parameter values, the stabilizing mechanism is unlikely to operate; second, in the analysis of the simple model, I have omitted the second stationary solution; third, he implies that the constraints that need to be imposed on my simple and complex models are in contradiction with each other. I argue that Skott confutes prototypes and reality; that the second stationary solution is of little interest; and that the constraints that need to be imposed on the simple and complex variants of the model are not in contradiction with each other.

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confidence: 96%

Prototypes, Reality and the Growth Rate of Autonomous Consumption Expenditures: A Rejoinder

Lavoie

2016

“…A rise in the profit share occurs through a causal process running from some unexplained ‘shock’ that causes ‘excess demand’, leading to an ‘instantaneous’ price inflation (above wage inflation), thus generating an increase in output and a higher profit share ‘ex post’. Besides Skott's weird assumption of flex‐prices with prices clearing markets in the very short run (also criticized by von Arnim and Barrales, ), it is not obvious how workers could create ‘excess demand’ given that their expenditures are limited to, and always exactly equal to, the wage bill. A more realistic proposition would be to suppose that workers have access to credit.…”

Section: Wage‐led Versus Profit‐led Demandmentioning

confidence: 99%

Trend and business cycles with external markets: Non‐capacity generating semi‐autonomous expenditures and effective demand

Fiebiger¹,

Lavoie

2017

The Global Financial Crisis has underlined the importance of developments in the household sector to explaining macro patterns. Some recent papers have discussed the role of non‐capacity generating semi‐autonomous expenditures in growth theory. This literature ties together several aspects of heterodox thought: growth and distribution; the Sraffian supermultiplier; Duesenberry's relative income hypothesis; the endogenous money approach and Kalecki–Luxemburg external markets. The basic message is that non‐wage sources of effective demand, based on mortgage and consumer credit, can play a key role in inducing capacity investment and driving long‐run output growth. This article gives a broad overview of the role of financed‐induced semi‐autonomous expenditures in growth, cycles and crises, and thus criticizes some of the previous approaches that claim to mimic actual cycles while abstracting from these crucial determinants of economic activity.

“… In post‐Keynesian literature, von Arnim and Barrales () show that real wages are countercyclical over 2–3 quarter cycles and procyclical in business cycle frequency.…”

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confidence: 99%

Macroeconomic stability in a flexible labor market

2018

This paper examines the relationship between labor market flexibility and macroeconomic stability from a post‐Keynesian perspective. Considering two aspects of labor market flexibility, employment flexibility and real wage flexibility, I adopt the flex–output model to discuss employment flexibility and extend it by incorporating real wage dynamics induced from a wage–price Phillips curve to discuss real wage flexibility. Simulation of the model suggests that employment flexibility possibly increases instability of an economy whereas real wage flexibility reduces it.