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A two-dimensional non-equilibrium dynamic model

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  • Gomes, Orlando

Abstract

This paper develops a non-equilibrium dynamic model (NEDyM) with Keynesian features (it allows for a disequilibrium between output and demand and it considers a constant marginal propensity to consume), but where production is undertaken under plain neoclassical conditions (a constant returns to scale production function, with the stocks of capital and labor fully employed, is assumed). The model involves only two endogenous/prognostic variables: the stock of physical capital per unit of labor and a measure of market disequilibrium (MMD). The two-dimensional system allows for a careful analysis of local and global dynamics. Points of bifurcation and long-term cyclical motion are identified. The main conclusion is that the disequilibrium hypothesis leads to persistent fluctuations generated by intrinsic deterministic factors. These fluctuations may reflect some of the features frequently encountered in observed business cycles, once the model is conveniently adapted to this purpose.

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Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 20 (2009)
Issue (Month): 3 (September)
Pages: 221-238

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Handle: RePEc:eee:streco:v:20:y:2009:i:3:p:221-238

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Web page: http://www.elsevier.com/locate/inca/525148

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Keywords: NEDyM Endogenous business cycles Nonlinear growth Keynesian macroeconomics Cyclical dynamics and chaos;

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