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Demand-driven inequality, endogenous saving rate and macroeconomic instability

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  • Soon Ryoo

Abstract

This article examines consumption dynamics in a Cambridge model of growth and distribution. The model endogenises the workers’ saving rate and incorporates out-of-equilibrium dynamics explicitly. The analysis identifies a new mechanism of macroeconomic instability that emerges from the interaction between the Kaldorian process of demand-driven inequality and the workers’ saving behaviour. The mechanism can generate perpetual cycles where the upwards phase is characterised by a prolonged period of falling saving rate and increasing income inequality. The article discusses the empirical relevance of the formal analysis. The article discusses the empirical relevance of the analytic results.

Suggested Citation

  • Soon Ryoo, 2016. "Demand-driven inequality, endogenous saving rate and macroeconomic instability," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(1), pages 201-225.
    • Handle: RePEc:oup:cambje:v:40:y:2016:i:1:p:201-225.
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    File URL: http://hdl.handle.net/10.1093/cje/beu062
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    Cited by:

    1. Daniele Tavani & Luca Zamparelli, 2017. "Endogenous Technical Change In Alternative Theories Of Growth And Distribution," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1272-1303, December.
    2. Ítalo Pedrosa & Dany Lang, 2018. "Heterogeneity, distribution and financial fragility of non-financial firms: an agent-based stock-flow consistent (AB-SFC) model," Working Papers hal-01937186, HAL.
    3. Soon Ryoo, 2016. "Inequality of Income and Wealth in the Long Run: A Kaldorian Perspective," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 429-457, May.
    4. Murakami, Hiroki & Zimka, Rudolf, 2020. "On dynamics in a two-sector Keynesian model of business cycles," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).
    5. Ítalo Pedrosa & Dany Lang, 2021. "To what extent does aggregate leverage determine financial fragility? New insights from an agent-based stock-flow consistent model," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1221-1275, September.

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