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Unemployment, income distribution and debt-financed investment in a growth cycle model

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  • Sordi, Serena
  • Vercelli, Alessandro

Abstract

As recent experience suggests, the most significant economic fluctuations are those that combine real and financial factors. This paper works out a simple model that couples a version of Goodwin׳s (1967) growth cycle model of real fluctuations with insights drawn from a model of financial fluctuations based on Minsky׳s financial instability hypothesis (Vercelli, 2000; Sordi and Vercelli, 2006, 2012). The model suggested substantially modifies that of Keen (1995), who combined insights from Goodwin and Minsky within a model of fluctuating growth. In the real part of the modelwe introduce the possibility of disequilibrium in the goods market and formalize a mechanism of output adjustment based on the conventional dynamic multiplier. The model so obtained may exhibit persistent dynamics and provide insights to enable better understanding of the nature of real-world fluctuations.

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  • Sordi, Serena & Vercelli, Alessandro, 2014. "Unemployment, income distribution and debt-financed investment in a growth cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 325-348.
    • Handle: RePEc:eee:dyncon:v:48:y:2014:i:c:p:325-348
    DOI: 10.1016/j.jedc.2014.09.030
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    Cited by:

    1. Serena Sordi & Marwil J. Dávila-Fernández, 2020. "Investment behaviour and “bull & bear” dynamics: modelling real and stock market interactions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(4), pages 867-897, October.
    2. Giuseppe Orlando & Mario Sportelli, 2021. "Growth and Cycles as a Struggle: Lotka–Volterra, Goodwin and Phillips," Dynamic Modeling and Econometrics in Economics and Finance, in: Giuseppe Orlando & Alexander N. Pisarchik & Ruedi Stoop (ed.), Nonlinearities in Economics, chapter 0, pages 191-208, Springer.
    3. Araujo, Ricardo Azevedo & Dávila-Fernández, Marwil J. & Moreira, Helmar Nunes, 2019. "Some new insights on the empirics of Goodwin's growth-cycle model," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 42-54.
    4. Engelbert Stockhammer, 2019. "Coupling cycle mechanisms: Minsky debt cycles and the multiplier-accelerator," Working Papers PKWP1904, Post Keynesian Economics Society (PKES).
    5. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Distributive cycles and endogenous technical change in a BoPC growth model," Economic Modelling, Elsevier, vol. 77(C), pages 216-233.
    6. Alessia Cafferata & Marwil J. Dávila-Fernández & Serena Sordi, 2021. "(Ir)rational explorers in the financial jungle," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1157-1188, September.
    7. Maria Nikolaidi & Engelbert Stockhammer, 2017. "Minsky Models: A Structured Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1304-1331, December.
    8. Yannis Dafermos, 2018. "Debt cycles, instability and fiscal rules: a Godley–Minsky synthesis," Cambridge Journal of Economics, Oxford University Press, vol. 42(5), pages 1277-1313.
    9. Barrales-Ruiz, Jose & Arnim, Rudiger von, 2021. "Endogenous fluctuations in demand and distribution: An empirical investigation," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 204-220.
    10. Maria Nikolaidi, 2017. "Three decades of modelling Minsky: what we have learned and the way forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 222-237, September.
    11. Yannis Dafermos, 2015. "Debt cycles, instability and fiscal rules: a Godley-Minsky model," Working Papers 20151509, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    12. Marwil Jhonatan Dávila Fernádez & José Luis Oreiro, 2016. "Capital In The Twenty First Century: Reinterpretando A Contradição Fundamental Do Capitalismo," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 096, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    13. Dávila-Fernández, Marwil & Oreiro, José, 2021. "A song of ice and fire: Competitiveness in an export-led growing economy," MPRA Paper 109821, University Library of Munich, Germany.
    14. Daniele Tavani & Luca Zamparelli, 2020. "Growth, income distribution, and the ‘entrepreneurial state’," Journal of Evolutionary Economics, Springer, vol. 30(1), pages 117-141, January.
    15. Plushchevskaya, Y., 2017. "A Basic Neomarxist Model of Economic Fluctuations," Journal of the New Economic Association, New Economic Association, vol. 35(3), pages 53-69.
    16. Marcio Santetti, 2023. "A time-varying finance-led model for U.S. business cycles," Papers 2310.05153, arXiv.org, revised Jan 2024.
    17. Grassetti, F. & Guzowska, M. & Michetti, E., 2020. "A dynamically consistent discretization method for Goodwin model," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).
    18. 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.
    19. Murakami, Hiroki & Zimka, Rudolf, 2020. "On dynamics in a two-sector Keynesian model of business cycles," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).
    20. Alessia Cafferata & Marwil J. Dávila-Fernández & Serena Sordi, 2020. "(Ir)rational explorers in the financial jungle: modelling Minsky with heterogeneous agents," Department of Economics University of Siena 819, Department of Economics, University of Siena.
    21. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "A Multi-Sectoral Approach to Financialisation," Department of Economics University of Siena 794, Department of Economics, University of Siena.

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    More about this item

    Keywords

    Growth cycle; Goods market disequilibrium; Goodwin; Minsky; Financial instability; Real/financial interaction;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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