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Expectations and Stability in the Kaleckian Growth Model

Author

Listed:
  • Gilberto Tadeu Lima

    () (Department of Economics, University of São Paulo)

  • Mark Setterfield

    () (Department of Economics, New School for Social Research)

Abstract

A central element in the canonical Kaleckian growth model is the demand-led output-adjustment stability condition known as the Keynesian stability condition. This condition requires that, all else constant, saving be more responsive to changes in capital capacity utilization than investment. This paper further explores the plausibility of the Keynesian stability condition by enriching the Kaleckian growth model with a more fully developed Keynesian theory of expectations formation. As a result, the responsiveness of investment to changes in capacity utilization is reduced, and through mechanisms that have clear and plausible behavioural underpinnings. It therefore becomes more likely (in principle) that the Keynesian stability condition will hold in practice. The paper also explores the consequences of such re-specification of investment behaviour for certain comparative static results associated with the canonical Kaleckian growth model.

Suggested Citation

  • Gilberto Tadeu Lima & Mark Setterfield, 2016. "Expectations and Stability in the Kaleckian Growth Model," Working Papers 1602, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1602
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    File URL: http://www.economicpolicyresearch.org/econ/2016/NSSR_WP_022016.pdf
    File Function: First version, 2016
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    More about this item

    Keywords

    Keynesian stability condition; expectations; Kaleckian growth model;

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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