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Aggregate demand, instability, and growth

  • Steven M. Fazzari

    (Washington University)

  • Pietro E. Ferri

    (University of Bergamo)

  • Edward G. Greenberg

    (Washington University)

  • Anna Maria Variato

    (University of Bergamo)

This paper considers a puzzle in growth theory from a Keynesian perspective. If neither wage and price adjustment nor monetary policy are effective at stimulating demand, no endogenous dynamic process exists to assure that demand grows fast enough to employ a growing labor force. Yet output grows persistently over long periods, occasionally reaching approximate full employment. We resolve this puzzle by invoking Harrod's instability results. Demand grows because it follows an explosive upward path that is ultimately limited by resource constraints. Downward demand instability is contained by introducing an autonomous component to aggregate demand.

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File URL: http://www.elgaronline.com/view/journals/roke/1-1/roke.2013.01.01.xml
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Article provided by Edward Elgar Publishing in its journal Review of Keynesian Economics.

Volume (Year): 1 (2013)
Issue (Month): 1 (January)
Pages: 1-21

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Handle: RePEc:elg:rokejn:v:1:y:2013:i:1:p1-21
Contact details of provider: Web page: http://www.elgaronline.com/roke

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  1. Robert A. Blecker, 2002. "Distribution, Demand and Growth in Neo-Kaleckian Macro-Models," Chapters, in: The Economics of Demand-Led Growth, chapter 8 Edward Elgar Publishing.
  2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
  3. Peter Skott, Ben Zipperer, 2010. "An empirical evaluation of three post Keynesian models," UMASS Amherst Economics Working Papers 2010-08, University of Massachusetts Amherst, Department of Economics.
  4. James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
  5. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
  6. Skott,Peter, 1989. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521365963, Junio.
  7. Thomas I. Palley, 2008. "Keynesian Models of Deflation and Depression Revisited: Inside Debt and Price Flexibility," Working Papers wp169, Political Economy Research Institute, University of Massachusetts at Amherst.
  8. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
  9. J. Bradford De Long & Lawrence H. Summers, 1985. "Is Increased Price Flexibility Stabilizing?," NBER Working Papers 1686, National Bureau of Economic Research, Inc.
  10. Puu, Tonu & Gardini, Laura & Sushko, Irina, 2005. "A Hicksian multiplier-accelerator model with floor determined by capital stock," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 331-348, March.
  11. Piero Ferri & Hyman P. Minsky, 1991. "Market Processes and Thwarting Systems," Economics Working Paper Archive wp_64, Levy Economics Institute.
  12. Anwar Shaikh, 2009. "Economic Policy In A Growth Context: A Classical Synthesis Of Keynes And Harrod," Metroeconomica, Wiley Blackwell, vol. 60(3), pages 455-494, 07.
  13. Aghion, Philippe & Banerjee, Abhijit, 2005. "Volatility and Growth," OUP Catalogue, Oxford University Press, number 9780199248612, December.
  14. J. A. Kregel, 1980. "Economic Dynamics and the Theory of Steady Growth: An Historical Essay on Harrod's ‘Knife-edge'," History of Political Economy, Duke University Press, vol. 12(1), pages 97-123, Spring.
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