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Time variation in the size of the multiplier: a Kalecki–Harrod approach

Author

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  • Mark Setterfield

    (Professor of Economics, The New School for Social Research, New York, NY, USA)

Abstract

A growing empirical literature demonstrates that the size of the expenditure multiplier varies over time, being both larger and consistently greater than one during periods of slow growth and/or recession. This paper contributes to the theory of the time-varying multiplier. It is shown that a combination of Kalecki's dynamic theory of investment and Harrod's 'satisficing' approach to the investment decision furnish a theory in which the 'crowding in' of investment expenditures following an initial demand stimulus gives rise to an elevated expenditure multiplier during times of pronounced macroeconomic distress.

Suggested Citation

  • Mark Setterfield, 2019. "Time variation in the size of the multiplier: a Kalecki–Harrod approach," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(1), pages 28-42, January.
    • Handle: RePEc:elg:rokejn:v:7:y:2019:i:1:p28-42
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    Citations

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    Cited by:

    1. Sebastian Gechert, 2023. "Fiscal policy: post- or New Keynesian?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(2), pages 338-355, November.
    2. Mark Setterfield, 2019. "Tolerable ranges of variation in the rate of capacity utilization and corridor instability: a reply to Florian Botte," Working Papers 1905, New School for Social Research, Department of Economics.
    3. Mark Setterfield, 2021. "Harrodians and Kaleckians: a suggested reconciliation and synthesis," Working Papers 2111, New School for Social Research, Department of Economics, revised Jan 2022.
    4. Thomas I. Palley, 2022. "The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs," Review of Political Economy, Taylor & Francis Journals, vol. 34(4), pages 692-708, October.

    More about this item

    Keywords

    multiplier; investment; crowding in; Kalecki; Harrod;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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