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Endogenous Growth, Price Stability and Market Disequilibria

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  • Orlando Gomes

    ()
    (Instituto Politécnico de Lisboa - Escola Superior de Comunicação Social and UNIDE-ERC)

Abstract

Resorting to an endogenous growth framework, the paper studies the implications of taking market clearing as a long term possibility rather than an every period implicit assumption, as is conventional in growth analysis. Under the proposed setup, the system may converge to a market equilibrium outcome in the same way it can converge to a state of constant growth; however, local instability may deviate the economy from the long run stable result. The underlying main assumption respects to an adjustment mechanism in which: (i) transitional dynamics are characterized by the persistence of an accumulated market imbalance; (ii) monetary authorities are able to guarantee price stability. The implications of this modelling structure are the following: (a) a market clearing equilibrium may co-exist with other equilibrium points; (b) several types of stability outcomes are obtainable; (c) monetary policy becomes relevant for growth.

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File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp0608.pdf
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Bibliographic Info

Paper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 1 with number ercwp0608.

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Length: 34 pages
Date of creation: 15 Jun 2008
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Handle: RePEc:isc:iscwp1:ercwp0608

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Keywords: Endogenous Growth; Non-equilibrium Models; Keynesian Macroeconomics; Local Stability analysis; monetary policy.;

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