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A Growth Model with Unemployment

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  • Mina Mahmoudi
  • Mark Pingle

Abstract

A standard growth model is modified in a straightforward way to incorporate what Keynes (1936) suggests in the "essence" of his general theory. The theoretical essence is the idea that exogenous changes in investment cause changes in employment and unemployment. We implement this idea by assuming the path for capital growth rate is exogenous in the growth model. The result is a growth model that can explain both long term trends and fluctuations around the trend. The modified growth model was tested using the U.S. economic data from 1947 to 2014. The hypothesized inverse relationship between the capital growth and changes in unemployment was confirmed, and the structurally estimated model fits fluctuations in unemployment reasonably well.

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  • Mina Mahmoudi & Mark Pingle, 2018. "A Growth Model with Unemployment," Papers 1806.04228, arXiv.org.
    • Handle: RePEc:arx:papers:1806.04228
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    References listed on IDEAS

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    1. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
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    4. Casares, Miguel & Moreno, Antonio & Vázquez, Jesús, 2014. "An estimated New-Keynesian model with unemployment as excess supply of labor," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 338-359.
    5. Solow, Robert M, 1988. "Growth Theory and After," American Economic Review, American Economic Association, vol. 78(3), pages 307-317, June.
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