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

This paper looks at the effect of demand shocks on the investment share of the economy. Using panel data on 20 OECD countries, we show that the rate of growth of autonomous demand (exports, public spending and housing investment) is positively correlated with subsequent values of the share of business investment in GDP. By means of an instrumental-variables strategy, we confirm a positive effect of demand dynamics on the business investment share. We instrument autonomous demand with US demand for imports interacted with exposure to trade with the US, openness to trade of a country's main export destinations, and military spending. A permanent 1% increase in autonomous demand growth raises the investment share by 1.5 to 1.9 percentage points of GDP in our preferred panel IV specification. Our results provide empirical support for the view that the influence of aggregate demand on capital accumulation can be a major source of hysteresis. Our results are inconsistent with the canonical New Keynesian 3equations model, the Neo-Kaleckian model with flexible equilibrium utilization and Classical-Marxian growth models. A positive influence of autonomous demand on the investment share is instead compatible with demand-led models in which capacity adjusts to demand in the long-run.

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“…32 See Skott (2012), Girardi and Pariboni (2018) and Cesaratto (2015) for detailed critical discussions.…”

Section: A7 Weighted Average Kof Index Of Openness To Trade For the mentioning

confidence: 99%

“…Skott (2012),Cesaratto (2015) andGirardi and Pariboni (2018) discuss critically this assumption, from both a theoretical and an empirical point of view.…”

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Autonomous demand and the investment share

Girardi

Pariboni

2020

Review of Keynesian Economics

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“…As a general speci…cation, the division of domestic demand between imports and domestically produced formal goods will depend on the ratio of foreign to domestic formal sector prices in common currency; that is, on the real exchange rate : Thus, the trade balance condition can be written N X K = X K + ( ; C + G K ; g + ) = 0 (25) where ( ; C+G K ; g + ) is the net exports of non-oil. Equations (16), (9), (19), (24) and (25) can be used to solve for g; ; ; w A L A and (C + G)=K.…”

Section: A Three-sector Model Of An Open Economymentioning

confidence: 99%

“…The tax rate t may be interpreted broadly to include indirect taxes on luxury goods which can act as a consumption tax. Wealth taxes could be also be included but would not add anything for present purposes 9. In a corporate economy household wealth takes the form of …nancial assets, including equity and corporate bonds, rather than direct ownership of …xed capital.…”

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Fiscal policy and structural transformation in developing economies

Skøtt

2021

Structural Change and Economic Dynamics

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Developing economies with high levels of open or hidden unemployment face structural transformation problems. Unlike in mature economies there are no structural aggregate demand problems, and sustained aggregate demand stimulus can lead to a pro…t squeeze in the modern sector and deindustrialization. Adaptations of 'functional …nance'to developing economies should aim to stabilize the level and composition of demand at values that are consistent with a target rate of growth of the modern sector. Populist temptations, however, may lead to deindustrialization.

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Multiplicity and not necessarily heterogeneity: implications for the long-run degree of capacity utilization

Domenico

2023

J Econ Interact Coord

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The paper discusses the implications of disaggregation within the post-Keynesian debate on the long-run convergence of the degree of capacity utilization toward the normal one. The debate is related to the emergence of Harrodian instability inside multiplier–accelerator models and has been characterized by two “opposite” positions: the supermultiplier (SM) and the neo-Kaleckian approaches. These approaches solve the instability issue differently, but both share the postulate that an equilibrium position is such only if the desired state of firms is realized. In the long run, the economy converges toward a fully adjusted position where the realized degree of capacity utilization is equal to the normal/desired one. In this paper, we develop an Agent Based—Stock Flow Consistent version of the SM model showing that once multiplier–accelerator mechanisms are explicitly reproduced in a multi-firm economy, the accumulation process can be stable without requiring any convergence between the actual and normal rate. Conversely, the modeled economy displays two emergent properties: the fluctuations of the business cycle arise endogenously, and the long-run aggregate degree of capacity utilization persistently fluctuates around a level lower than the normal one. To this extent, the quasi-steady state corresponds to a situation where the desired state of agents is not realized and single elements are not in equilibrium, but the aggregate is. Finally, we compare outcomes produced from the model according to different scenarios on firms' heterogeneity and network symmetries.

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

Cited by 32 publications

References 32 publications

Autonomous demand and the investment share

Autonomous demand and the investment share

Fiscal policy and structural transformation in developing economies

Multiplicity and not necessarily heterogeneity: implications for the long-run degree of capacity utilization

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