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Endogenous Growth, Price Stability and Market Disequilibria

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Author Info
Orlando Gomes () (Instituto Politécnico de Lisboa - Escola Superior de Comunicação Social and UNIDE-ERC)

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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://erc.unide.iscte.pt/wpi/ERCwp0608.pdf
File Format: application/pdf
File Function: Fourth version, 2008
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Publisher Info
Paper provided by ISCTE, UNIDE, Economics Research Centre in its series Working Papers with number ercwp0608.

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Length: 34 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:isc:wpaper:ercwp0608

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

Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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