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Credit Driven Investment, Heterogeneous Labor Markets and Macroeconomic Dynamics

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  • Matthieu Charpe
  • Peter Flaschel
  • Hans-Martin Krolzig
  • Christian Proaño
  • Willi Semmler
  • Daniele Tavani

Abstract

In this paper we set up a baseline, but nevertheless advanced and complete model representing detailed goods market dynamics, heterogeneous labor markets, dual and cross-dual wage-price adjustment processes, as well as counter-cyclical government policies. The cyclical movements of output generate, through Okun's law, employment variations in the heterogeneous labor market. The core of the resulting Keynesian macrodynamics is however given by credit-financed investment behavior and loan-rate setting by credit suppliers. The framework is constructed in such way that simplified, lower dimensional versions of the model can be obtained by setting parameters describing specific feedback effects from one sector to another equal to zero. Starting from such low dimensional sub-dynamics, we show through a ``cascade of stable matrices'' approach that the local stability of the full 7D model is given if the feedback chains are sufficiently tranquil in their transmission mechanisms. However, local stability is the point of departure for the numerical investigation of local explosiveness and the forces that can bound such a behavior.

Suggested Citation

  • Matthieu Charpe & Peter Flaschel & Hans-Martin Krolzig & Christian Proaño & Willi Semmler & Daniele Tavani, 2013. "Credit Driven Investment, Heterogeneous Labor Markets and Macroeconomic Dynamics," IMK Working Paper 110-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  • Handle: RePEc:imk:wpaper:110-2013
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    2. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    3. Charpe,Matthieu & Chiarella,Carl & Flaschel,Peter & Semmler,Willi, 2015. "Financial Assets, Debt and Liquidity Crises," Cambridge Books, Cambridge University Press, number 9781107546660, March.
    4. Chiarella,Carl & Flaschel,Peter, 2011. "The Dynamics of Keynesian Monetary Growth," Cambridge Books, Cambridge University Press, number 9780521180184, April.
    5. H. Rose, 1967. "On the Non-Linear Theory of the Employment Cycle," Review of Economic Studies, Oxford University Press, vol. 34(2), pages 153-173.
    6. Ekkehard Ernst & Peter Flaschel & Christian Proano & Willi Semmler, 2006. "Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves," IMK Working Paper 04-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Christian R. Proaño & Peter Flaschel & Hans-Martin Krolzig & Mamadou Bobo Diallo, 2011. "Monetary policy and macroeconomic stability under alternative demand regimes," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 569-585.
    8. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    9. Nelson H. Barbosa-Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy-A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
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    11. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
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    Cited by:

    1. Matthieu Charpe & Carl Chiarella & Peter Flaschel & Christian R. Proaño, 2014. "Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics," Working Papers 1401, New School for Social Research, Department of Economics.
    2. Schleer, Frauke & Semmler, Willi, 2015. "Financial sector and output dynamics in the euro area: Non-linearities reconsidered," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 235-263.
    3. Schleer, Frauke & Semmler, Willi, 2013. "Financial sector-output dynamics in the euro area: Non-linearities reconsidered," ZEW Discussion Papers 13-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Ogawa, Shogo, 2018. "Dynamic Analysis of a Disequilibrium Macroeconomic Model with Dual Labor Markets," MPRA Paper 84107, University Library of Munich, Germany.
    5. Ryunosuke Sonoda & Hiroaki Sasaki, 2015. "Differences in Wage-Determination Systems between Regular and Non-Regular Employment in a Kaleckian Model," Discussion papers e-14-018, Graduate School of Economics Project Center, Kyoto University.

    More about this item

    Keywords

    Macroeconomic (In-)Stability; Segmented Labor Markets; Business Cycles; Fiscal and Monetary Policy Rules;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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