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Harrodian instability in decentralized economies: an agent-based approach

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  • Emanuele Russo

Abstract

This paper presents a small-scale agent-based extension of the so-called neo-Kaleckian model. The aim is to investigate the emergence of Harrodian instability in decentralized market economies. We introduce a parsimonious microfoundation of investment decisions. Agents have heteroge- neous expectations about demand growth and set idiosyncratically their investment expendi- tures. Interactions occur through demand externalities. We simulate the model under different scenarios. First, when heterogeneity is ruled out, Harrodian instability is showed to emerge as for the aggregate model. Instead, when heterogeneity is accounted for, a stable dynamics with endogenous fluctuations arises. At the same time, in this second scenario, all the Keynesian implications are preserved, including the presence of macroeconomic paradoxes. Sensitivity analysis confirms the general robustness of our results and the logical consistency of the model.

Suggested Citation

  • Emanuele Russo, 2017. "Harrodian instability in decentralized economies: an agent-based approach," LEM Papers Series 2017/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2017/17
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    Keywords

    Harrodian Instability; Agent-Based Models; Coordination Failures; Heterogeneous Expectations; Neo-Kaleckian model;

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