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Autonomous demand, expectations and calibration: simulating demand led growth

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  • Graham White

Abstract

The paper sets out a multi-commodity model of demand-led growth which can serve as a basis for simulation. Following Franke (2017), attention is initially on the calibration of key parameters, in particular, sectoral capital to output ratios consistent with reported estimates of the aggregate output to capital ratio. The key complexity arises from the influence of relative prices on the measured aggregate ratio and the lower limits on sectoral capital-output ratios consistent with that measure on the one hand combined with upper limits required for stability. The paper proceeds with a set of sectoral ratios as small as possible but consistent with measurement of the aggregate output-capital ratio. The model is then used to simulate responses to an autonomous demand shock in two different settings; where autonomous demand before and after the shock grows at a constant rate; and where its rate of growth is subject to random fluctuations and the shock is to its mean rate of growth. The simulation results in turn allow for a discussion of two key issues in the modelling of demand-led growth: the significance of autonomous demand including in the formation of expectations; and, the long-run convergence of utilization towards a normal rate.

Suggested Citation

  • Graham White, 2023. "Autonomous demand, expectations and calibration: simulating demand led growth," Working Papers 2023-08, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2023-08
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    References listed on IDEAS

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    1. Santiago José Gahn, 2023. "Critical notes on some recent Neo-Kaleckian contributions on capacity utilization," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(3), pages 261-289, July.
    2. Ettore Gallo, 2022. "When is the long run?—Historical time and adjustment periods in demand‐led growth models," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1155-1178, November.
    3. Peter Skott, 2019. "Autonomous demand, Harrodian instability and the supply side," Metroeconomica, Wiley Blackwell, vol. 70(2), pages 233-246, May.
    4. Oscar de-Juan, 2005. "Paths of accumulation and growth: Towards a Keynesian long-period theory of output," Review of Political Economy, Taylor & Francis Journals, vol. 17(2), pages 231-252.
    5. Marc Lavoie, 2016. "Convergence Towards the Normal Rate of Capacity Utilization in Neo-Kaleckian Models: The Role of Non-Capacity Creating Autonomous Expenditures," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 172-201, February.
    6. Antonella Palumbo & Attilio Trezzini, 2003. "Growth without normal capacity utilization," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(1), pages 109-135.
    7. Trezzini, Attilio & Pignalosa, Daria, 2021. "The Normal Degree of Capacity Utilization: The History of a Controversial Concept," Centro Sraffa Working Papers CSWP49, Centro di Ricerche e Documentazione "Piero Sraffa".
    8. James A. Clifton, 1983. "Administered Prices In The Context Of Capitalist Development," Contributions to Political Economy, Cambridge Political Economy Society, vol. 2(1), pages 23-38.
    9. Reiner Franke, 2017. "What output-capital ratio to adopt for macroeconomic calibrations?," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(2), pages 208-224, March.
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    Keywords

    Demand-led growth; calibration; utilization;
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