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Corridor Stability of the Neoclassical Steady State

In: Time and Space in Economics

Author

Listed:
  • Akitaka Dohtani

    (University of Toyama)

  • Toshio Inaba

    (Waseda University)

  • Hiroshi Osaka

    (University of Toyama)

Abstract

Summary Combining the permanent income hypothesis with the capital accumulation equation, we construct a growth model which gives a modified version of the neoclassical growth model. The consumption at one time is determined by the expected permanent income at that time. The modified growth model possesses a unique steady state which is the same as that of the neoclassical growth model. Unlike the neoclassical growth model, however, the modified growth model yields corridor stability. That is, there exists a corridor of stability around the steady state such that any path inside the corridor converges to the steady state and any path outside the corridor diverges. Thus, the neoclassical view of economy holds true for inside the corridor, but does not hold for outside the corridor, and hysteresis emerges near the corridor. Although the modified growth model generates fluctuating dynamics, it does explain the stably observed feature that any path which maintains a nearly proportional relation between consumption and income is compatible with fluctuating dynamics. We also make clear the effects of the parameters on the aggregate and the stability of the per-capita steady state.

Suggested Citation

  • Akitaka Dohtani & Toshio Inaba & Hiroshi Osaka, 2007. "Corridor Stability of the Neoclassical Steady State," Springer Books, in: Toichiro Asada & Toshiharu Ishikawa (ed.), Time and Space in Economics, chapter 7, pages 129-143, Springer.
    • Handle: RePEc:spr:sprchp:978-4-431-45978-1_7
    DOI: 10.1007/978-4-431-45978-1_7
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    Cited by:

    1. Bischi, Gian Italo & Giombini, Germana & Travaglini, Giuseppe, 2022. "Monetary and fiscal policy in a nonlinear model of public debt," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 397-409.
    2. Dohtani, Akitaka, 2010. "A growth-cycle model of Solow-Swan type, I," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 428-444, November.
    3. Foroni, Ilaria & Agliari, Anna, 2011. "Complex dynamics associated with the appearance/disappearance of invariant closed curves," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(8), pages 1640-1655.
    4. Hiroki Murakami, 2019. "A note on the “unique” business cycle in the Keynesian theory," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 384-404, July.
    5. Gian Italo Bischi & Fabio Lamantia, 2022. "Evolutionary oligopoly games with cooperative and aggressive behaviors," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(1), pages 3-27, January.

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