Applying Disequilibrium Growth Theory: Debt Effects and Debt Deflation
AbstractIn this paper, we consider two polar dynamical models in which firms use debt (loans) to finance their investment expenditure: a three-dimensional supply-driven model and a sophisticated 20-D Keynesian growth model. In the first, firms' debt accumulations interact with the income distribution and resulting capital-stock and employment-growth patterns. In the second, a high-dimensional model, we have sluggishly adjusting prices and quantities, Keynesian demand rationing, and fluctuating capacity utilization for both labor and capital -- with all budget equations specified and a balanced-growth reference path. These polar growth perspectives are brought together in an intermediate 4-D dynamics, where the debt accumulation of the simple model is combined with the possibility of the deflationary processes of the general model. This intermediate case allows the formulation and investigation, both analytically and numerically, of situations of debt deflation in a demand-constrained setup that augments the insights obtained from the simple model and illustrates an important destabilizing feedback chain in the general 20-D dynamics.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 714.
Date of creation: 01 Mar 1999
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-07-12 (All new papers)
- NEP-DEV-1999-07-12 (Development)
- NEP-FIN-1999-07-12 (Finance)
- NEP-PKE-1999-07-12 (Post Keynesian Economics)
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- Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
- Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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