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Endogenous Growth, Price Stability and Market Disequilibria

Author

Listed:
  • Orlando Gomes

    (Instituto Politécnico de Lisboa - Escola Superior de Comunicação Social and UNIDE-ERC)

Abstract

Resorting to an endogenous growth framework, the paper studies the implications of taking market clearing as a long term possibility rather than an every period implicit assumption, as is conventional in growth analysis. Under the proposed setup, the system may converge to a market equilibrium outcome in the same way it can converge to a state of constant growth; however, local instability may deviate the economy from the long run stable result. The underlying main assumption respects to an adjustment mechanism in which: (i) transitional dynamics are characterized by the persistence of an accumulated market imbalance; (ii) monetary authorities are able to guarantee price stability. The implications of this modelling structure are the following: (a) a market clearing equilibrium may co-exist with other equilibrium points; (b) several types of stability outcomes are obtainable; (c) monetary policy becomes relevant for growth.

Suggested Citation

  • Orlando Gomes, 2008. "Endogenous Growth, Price Stability and Market Disequilibria," Working Papers Series 1 ercwp0608, ISCTE-IUL, Business Research Unit (BRU-IUL).
    • Handle: RePEc:isc:iscwp1:ercwp0608
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    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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