Inconsistencies in the note of Dávila‐Fernández, Oreiro and Punzo

Lavoie, Marc

doi:10.1111/meca.12202

Cited by 9 publications

(10 citation statements)

References 9 publications

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“…The conditions for the static and dynamic stability of the autonomous demand‐led Supermultiplier growth model has been misunderstood by Dávila‐Fernández et al () who attempt to criticize the model by arguing that the mere presence of an autonomous component of demand is not sufficient to ensure the stability of the process of adjustment of capacity to demand. As pointed out by Lavoie () no such claim was ever made by the proponents of such models. The critique shows a lack of understanding that even the static stability of the Supermultiplier requires both that there is an autonomous component in demand and capacity generating investment follows the capital stock adjustment principle.…”

Section: Discussion Of the Literaturementioning

confidence: 99%

The Trouble with Harrod: The fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier

2018

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The paper argues that Harrodian instability is an instance of what Hicks in his book Capital and Growth (1965) called static instability, related to the direction (and not to the intensity) of the disequilibrium adjustment process. We show why such instability obtains in demand‐led growth models in which the ratio of capacity creating private investment to output ratio is given exogenously by the aggregate marginal propensity to save. We also show that Sraffian Supermultiplier model overcomes the Harrodian instability and that its demand‐led equilibrium is statically stable. It is explained that the latter results do not follow from the presence of autonomous non‐capacity creating expenditure component as such but from its presence within a model in which investment is driven by the capital stock adjustment principle (i.e., the flexible accelerator). Finally, we argue that, although being statically stable, the equilibrium growth path of the Sraffian Supermultiplier model can be dynamically stable or unstable depending on the intensity of the reaction of investment to demand. We then provide a discrete time sufficient condition for the dynamic stability of such equilibrium that implies that the marginal propensity to invest remains lower than the marginal propensity to save during the adjustment process, a modified Keynesian stability condition.

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Section: Discussion Of the Literaturementioning

confidence: 99%

The Trouble with Harrod: The fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier

2018

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“…They argue that the presence of an exogenous component in the accumulation function (corresponding to parameter γ in Equation 1) is an essential feature because "making autonomous investment [the parameter γ] an endogenous variable (…) would eliminate all roles for uncertainty and animal spirits in long-run growth" (Dávila-Fernández et al, 2017, p. 5). Lavoie (2018) has already provided compelling critiques of the specific contribution of Dávila-Fernández et al (2017). We will not repeat Lavoie's points here.…”

Section: Further Problems Related To the Existence Of Autonomous Dementioning

confidence: 93%

“…Lavoie () has already provided compelling critiques of the specific contribution of Dávila‐Fernández et al (). We will not repeat Lavoie's points here.…”

Section: Theoretical Weaknesses Of the New Approachmentioning

confidence: 99%

Normal utilization as the adjusting variable in Neo‐Kaleckian growth models: A critique

Girardi

Pariboni

2018

Metroeconomica

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As well‐known, the canonical Neo‐Kaleckian growth model fails to reconcile actual and normal rates of utilization in equilibrium. Some recent contributions revive an old proposal for solving this problem—making the normal rate of utilization an endogenous variable that converges to the actual utilization rate—justifying it with new, micro‐founded premises. We argue that these new justifications for the convergence of normal to actual utilization do not stand closer scrutiny. First, the proposed microeconomic model relies on various restrictive assumptions, some of which are mutually inconsistent. Second, the derivation of the macroeconomic adjustment mechanism from the microeconomic analysis involves a logical leap that can be justified only by a very arbitrary assumption with little economic justification. Finally, we discuss the way in which this mechanism has been incorporated into the Neo‐Kaleckian growth model by proposers of this approach. We show that, even if one puts aside, for the sake of argument, the first two points, the existence of autonomous components of demand is sufficient to invalidate the resulting macroeconomic model.

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“…Dávila-Fernández et al (2019) fail to discern that Lavoie's (2016) long-run model obtains an equality between the actual and normal utilisation rates due to the combination of autonomous or semi-autonomous expenditures, the Keynesian stability condition and a weak Harrodian mechanism. See Lavoie (2019) for a discussion.…”

Section: Introductionmentioning

confidence: 99%

Some observations on endogeneity in the normal rate of capacity utilisation

Fiebiger

2020

Review of Keynesian Economics

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As is well known, the closure of the canonical Neo-Kaleckian model is an endogenous rate of capacity utilisation. To allay concerns of Harrodian instability one response has been to endogenise the normal rate to effective demand pressures. Recent contributions have stressed microfoundations for an adjustment in the normal rate towards the actual rate. The new approach focuses on shiftwork and redefines capacity utilisation as the average workweek of capital. This paper examines whether the new concept of capacity utilisation can provide a firmer basis for endogeneity in the normal rate. It argues that the assumption of variability in the normal shift system cannot be generalised across manufacturing industries, while the potential relevance for non-manufacturing industries is unknown. Another concern is that long-run trends in the average workweek of capital and aggregate demand do not coincide. The paper also finds that the long-run trend in the US Federal Reserve's index of capacity utilisation for the manufacturing sector is not flat as frequently claimed. Instead, there is a downward trend from the mid 1960s, which matches the slowdown in aggregate demand.

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Inconsistencies in the note of Dávila‐Fernández, Oreiro and Punzo

Cited by 9 publications

References 9 publications

The Trouble with Harrod: The fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier

The Trouble with Harrod: The fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier

Normal utilization as the adjusting variable in Neo‐Kaleckian growth models: A critique

Some observations on endogeneity in the normal rate of capacity utilisation

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