Foundations for a Disequilibrium Theory of the Business Cycle: Qualitative Analysis and Quantitative Assessment,9780521850254

Foundations for a Disequilibrium Theory of the Business Cycle: Qualitative Analysis and Quantitative Assessment

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ISBN13: 9780521850254
ISBN10: 0521850258
Format: Hardcover
Pub. Date: 2005-11-28
Publisher(s): Cambridge University Press
List Price: $173.00

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Summary

Building on The Dynamics of Keynesian Monetary Growth by Chiarella and Flaschel (2000), this book is a key contribution to business cycle theory, setting out a disequilibrium approach with gradual adjustments of the key macroeconomic variables. Its analytic study of a deterministic model of economic activity, inflation and income distribution integrates elements in the tradition of Keynes, Metzler and Goodwin (KMG). After a qualitative analysis of the basic feedback mechanisms, the authors calibrate the KMG model to the stylized facts of the business cycle in the U.S. economy, and then undertake a detailed numerical investigation of the local and global dynamics generated by the model. Finally, topical issues in monetary policy are studied in small macromodels as well as for the KMG model by incorporating an estimated Taylor-type interest rate reaction function. The stability features of this enhanced model are also compared to those of the original KMG model.

Table of Contents

List of figures x
List of tables xiii
Foreword by J. Barkley Rosser, Yr. xv
Preface xix
Notation xxii
1 Competing approaches to Keynesian macrodynamics 1(60)
1.1 Introduction
1(7)
1.1.1 General methodological remarks
1(5)
1.1.2 A historical perspective
6(2)
1.2 Neoclassical Synthesis, Stage I: traditional AS-AD dynamics
8(13)
1.2.1 Keynesian AS-AD dynamics with rational expectations
9(7)
1.2.2 Further scenarios of the wage-price dynamics
16(5)
1.3 Neoclassical Synthesis, Stage H: New-Keynesian macrodynamics
21(21)
1.3.1 The baseline model with perfect wage flexibility
23(4)
1.3.2 Staggered wages and prices
27(4)
1.3.3 Combining forward-looking and backward-looking behaviour I
31(6)
1.3.4 Combining forward-looking and backward-looking behaviour II
37(5)
1.4 Keynesian DAS-AD dynamics and the wage-price spiral
42(12)
1.4.1 The D(isequilibrium)AS-AD approach to the wage-price spiral
42(5)
1.4.2 Feedback-guided stability analysis: example 1
47(2)
1.4.3 Feedback-guided stability analysis: example 2
49(3)
1.4.4 D(isequilibrium)AS-D(isequilibrium)AD modelling
52(2)
1.5 Plan of the book
54(7)
1.5.1 Part I: Textbook Approaches
54(1)
1.5.2 Part II: Analytical Framework: Theory and Evidence
55(3)
1.5.3 Part III: Monetary Policy
58(3)
Part I Textbook Approaches 61(94)
2 AS-AD growth theory: a complete analysis of the textbook model
63(37)
2.1 Introduction
63(2)
2.2 The modelling equations
65(5)
2.3 The model in intensive form
70(4)
2.4 IS-LM analysis and completion of the dynamic system
74(5)
2.5 Local stability analysis
79(5)
2.6 A numerical stability analysis
84(5)
2.7 Basic feedback loops
89(3)
2.8 A representative simulation run
92(5)
2.9 Conclusion
97(1)
2.10 Appendix: The Hopf bifurcation theorem
98(2)
3 Disequilibrium growth: the point of departure
100(55)
3.1 Introduction
100(2)
3.2 An alternative to the neoclassical production function
102(5)
3.3 The remainder of the model
107(5)
3.4 The model in intensive form
112(4)
3.5 Local stability results
116(7)
3.6 A tentative calibration of the real wage dynamics
123(4)
3.7 Numerical stability analysis
127(8)
3.8 Basic feedback loops
135(7)
3.9 The cyclical pattern
142(3)
3.10 Global stabilization through modified adaptive expectations
145(6)
3.11 Conclusion
151(4)
Part II Analytical Framework: Theory and Evidence 155(214)
4 The Keynes–Metzler–Goodwin model
157(39)
4.1 Introduction
157(3)
4.2 Formulation of the model
160(13)
4.2.1 Households
160(3)
4.2.2 Firms
163(4)
4.2.3 The government
167(1)
4.2.4 The wage-price sector
168(3)
4.2.5 Checking on accounting consistency
171(2)
4.3 The model in intensive form
173(6)
4.4 The general strategy of the stability proof
179(3)
4.5 Proving local stability with a cascade of stable matrices
182(8)
4.6 Conclusion
190(1)
4.7 Appendix: The discrete-time approximation
191(5)
5 Calibration of three wage-price modules
196(51)
5.1 Introduction
196(5)
5.2 Stylized facts of wage-price dynamics
201(8)
5.3 The three wage-price modules
209(9)
5.3.1 The common nominal wage dynamics
209(2)
5.3.2 Inflation module CCP: countercyclical prices
211(3)
5.3.3 Inflation module PPC: the extended price Phillips curve
214(2)
5.3.4 Inflation module VMK: a variable markup
216(2)
5.4 Preparing the calibrations
218(5)
5.4.1 The exogenous sine wave oscillations
218(3)
5.4.2 Productivity and employment
221(2)
5.5 Wage-price dynamics with inflation module CCP
223(7)
5.6 Wage-price dynamics with inflation module PPC
230(3)
5.7 Wage-price dynamics with inflation module VMK
233(3)
5.8 Evaluation of the calibration results
236(2)
5.9 The cyclical properties under the empirical utilization series
238(5)
5.10 Conclusion
243(2)
5.11 Appendix: The empirical time series
245(2)
6 Calibration of the full KMG model
247(40)
6.1 Introduction
247(1)
6.2 Stylized facts of the goods market
248(3)
6.3 The calibration levels
251(8)
6.3.1 Recapitulation of the wage-price dynamics
251(2)
6.3.2 The money market
253(1)
6.3.3 Production and the goods market
254(3)
6.3.4 Endogenous utilization
257(2)
6.4 Calibration under exogenous fluctuations of utilization
259(6)
6.4.1 Steady-state values and other constant ratios
259(2)
6.4.2 Interest rate oscillations
261(1)
6.4.3 Goods market dynamics
262(3)
6.5 Synopsis of the calibration results
265(1)
6.6 Empirical fluctuations of utilization
266(2)
6.7 The fully endogenous model and its dynamics
268(11)
6.7.1 A nonlinear investment function
268(3)
6.7.2 Calibrating investment and the long-run dynamics
271(4)
6.7.3 Evaluation of the cyclical features
275(4)
6.8 Conclusion
279(1)
6.9 Appendix 1: The empirical time series
280(1)
6.10 Appendix 2: A semi-structural econometric model and its eigenvalues
281(6)
7 Subsystems and sensitivity analysis of the KMG model
287(82)
7.1 Introduction
287(2)
7.2 The Metzlerian subdynamics
289(13)
7.2.1 Mathematical two-dimensional stability analysis
289(4)
7.2.2 The Metzlerian feedback mechanisms
293(5)
7.2.3 The Metzlerian adjustment parameters in the full KMG model
298(4)
7.3 The wage-price subdynamics
302(15)
7.3.1 Mathematical two-dimensional stability analysis
302(7)
7.3.2 The real wage feedback mechanisms
309(3)
7.3.3 Parameter diagrams for the two-dimensional and six-dimensional dynamics
312(5)
7.4 The monetary subdynamics
317(19)
7.4.1 A necessary condition for stability in the three-dimensional system
317(3)
7.4.2 The role of the output-inflation nexus
320(3)
7.4.3 Can a negative output-inflation nexus be detected in the data?
323(4)
7.4.4 Parameter diagrams for the three-dimensional and six-dimensional dynamics
327(9)
7.5 Towards a landscape of the parameter stability effects
336(14)
7.5.1 Reference to the (βIu,βIq)) parameter plane
336(4)
7.5.2 Reference to different stability intervals
340(3)
7.5.3 A succinct characterization of the parameters
343(5)
7.5.4 Stability regions in the plane: the six elementary contours
348(2)
7.6 Properties of the dynamic trajectories
350(16)
7.6.1 Stable limit cycles from a Hopf bifurcation
350(4)
7.6.2 Is there scope for complex cyclical behaviour?
354(5)
7.6.3 Are countercyclical government expenditures stabilizing?
359(7)
7.7 Conclusion
366(3)
Part III Monetary Policy 369(136)
8 The Taylor rule in small macromodels
371(56)
8.1 Introduction
371(1)
8.2 The concept of the Taylor rule
372(13)
8.2.1 The interest rate as a policy variable
372(4)
8.2.2 Specification of the Taylor rule
376(3)
8.2.3 Estimation of the Taylor rule
379(6)
8.3 Four prototype models
385(9)
8.3.1 Model 1: Taylor interest rate and static IS
386(3)
8.3.2 Model 2: Taylor interest rate and dynamic IS
389(2)
8.3.3 Model 3: Interest rate smoothing and static IS
391(1)
8.3.4 Model 4: Interest rate smoothing and dynamic IS
392(2)
8.4 An estimated Keynes-Phillips-Taylor model from the literature
394(21)
8.4.1 Formulation and estimation of the Rudebusch-Svensson model
394(3)
8.4.2 Stability analysis
397(6)
8.4.3 Dynamic properties
403(10)
8.4.4 A note on low rates of interest
413(2)
8.5 Appendix: The reduced form of forward-looking models
415(12)
8.5.1 A neoclassical specification
416(5)
8.5.2 A New-Keynesian specification
421(6)
9 Incorporating the Taylor rule into KMG
427(78)
9.1 Introduction
427(1)
9.2 The Keynes-Metzler-Goodwin-Taylor model
428(22)
9.2.1 Formulation of the model
429(5)
9.2.2 Possible non-uniqueness of the equilibrium
434(10)
9.2.3 Mathematical stability analysis and its limitations
444(9)
9.2.4 Numerical support for sufficient stability conditions
453
9.3 Global dynamics of the KMGT model
450(24)
9.3.1 Setting up a stable and an unstable scenario
459(4)
9.3.2 Dynamics in the stable case: the Frisch paradigm
463(6)
9.3.3 Dynamics in the unstable case: endogenous cycles
469(5)
9.4 The role of the policy coefficients in the Taylor rule
474(17)
9.4.1 Stability effects
474(5)
9.4.2 Policy changes and their impact on the dynamics in the stable case
479(7)
9.4.3 Policy changes and their impact on the dynamics in the unstable case
486(5)
9.5 Towards a landscape of the parameter stability effects in KMGT
491(11)
9.5.1 Reference to the (βIu,βIq)) parameter plane
491(4)
9.5.2 Reference to different stability intervals
495(3)
9.5.3 A succinct characterization of the parameters in KMG and KMGT
498(4)
9.6 Appendix: The detailed Jacobian matrix of the KMGT model
502(3)
References 505(9)
Index 514

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