IDEAS home Printed from https://ideas.repec.org/p/uts/wpaper/98.html
   My bibliography  Save this paper

Towards Applied Disequilibrium Growth Theory: VI Substitution, Money-Holdings, Wealth-Effects and Further Extensions

Author

Listed:

Abstract

In this paper we present a theoretical disequilibrium growth model of an open economy with a full set of markets and sectors and with heterogeneous agents in the household sector. This model allows, on the one hand, for basic consistency checks, such as fully specified bedget identities and a well-defined steady state refernce path and is therefore carefully specified from the theoretical point of view. On the other hand, the model is already fairly close to applied modern structural model building and thus is rich in descriptive detail. The model exhibits five real and five financial markets. Consumption behavior is formulated by way of the life cycle hypothesis and savings of worker households are allocated to money and short-term bonds, while savings of pure asset holders concern all financial assets considered (equities and long-term bonds, domestic and foreign ones). Firms use three inputs (labor, capital and imports) to produce two outputs (domestic goods and export commodities) by way of a nested CES/CET technology and they produce in a cost-minimizing way subject to a domestic demand constraint, also formulating medium run targets that guide their investment and pricing decision. The government sector is described in a very detailed way, including a variety of taxation schemes in particular and also a debt target according to which taxes are adjusted. We consider sluggishly adjusting wages and prices, coupled with heterogeneous expectations formation, and have on this basis fluctuating rates of capacity utilization on the labor market as well as on the market for goods. Financial markets, finally, are described by delayed adjustment processes towards interest rate parity conditions. The paper itself presents only the extensive form of the model with all of its details and compares it to the Murphy model for the Australian economy and also with the Multimod model, Mark III of the IMF. In subsequent papers we derive the intensive form of the model, its interior steady state solution and a 22 dimensional core dynamics which is then investigated from the theoretical and the numerical point of view, concerning the major feedback loops it contains and the stabilizing or destabilizing implications they give rise to. The main perspective of our work is to contribute to a better theoretical underpinning and understanding of modern applied macrodynamic models which nowadays also attempt to be complete with respect to budget identities and steady state reference paths, but which have not yet fully grasped the stability implications of their model buildings and basically have not yet included heterogeneity with respect to households and expectations formation.

Suggested Citation

  • Carl Chiarella & Peter Flaschel & Gangolf Groh & Carsten Köper & Willi Semmler, 1999. "Towards Applied Disequilibrium Growth Theory: VI Substitution, Money-Holdings, Wealth-Effects and Further Extensions," Working Paper Series 98, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  • Handle: RePEc:uts:wpaper:98
    as

    Download full text from publisher

    File URL: http://www.finance.uts.edu.au/research/wpapers/wp98.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Carl Chiarella & Peter Flaschel & Gangolf Groh & Carsten Köper & Willi Semmler, 1999. "Towards Applied Disequilibrium Growth Theory: VII Intensive Form and Steady State Calculation in the Case of Substitution," Working Paper Series 99, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Carl Chiarella & Peter Flaschel, 1999. "Towards Applied Disequilibrium Growth Theory: II Intensive Form and Steady State Analysis of the Model," Working Paper Series 94, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Peter Flaschel & Gang Gong & Willi Semmler, 1998. "A Keynesian Based Econometric Framework for Studying Monetary Policy Rules," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 1998-04, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    4. Carl Chiarella & Peter Flaschel, 2003. "Towards Applied Disequilibrium Growth Theory: V Housing Investment Cycles, Private Debt Accumulation and Deflation," Working Paper Series 97, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    5. William A. Barnett & Yijun He, 1998. "Bifurcations in Continuous-Time Macroeconomic Systems," Macroeconomics 9805018, EconWPA.
    6. Carl Chiarella & Peter Flaschel, 1999. "Towards Applied Disequilibrium Growth Theory: I The Starting Model," Working Paper Series 93, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    7. Carl Chiarella & Peter Flaschel & Peiyuan Zhu, 2003. "Towards Applied Disequilibrium Growth Theory: IV Numerical Investigations of the Core 18D Model," Working Paper Series 96, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    8. Carl Chiarella & Peter Flaschel, 1999. "Disequilibrium Growth Theory: Foundations, Synthesis, Perspectives," Working Paper Series 85, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    9. Carl Chiarella & Peter Flaschel, 1999. "Towards Applied Disequilibrium Growth Theory: III Basic Partial Feedback Structures and Stability Issues," Working Paper Series 95, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    10. Chiarella, Carl & Flaschel, Peter, 2000. "High order disequilibrium growth dynamics: Theoretical aspects and numerical features," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 935-963, June.
    11. Reiner Franke & Willi Semmler, 1999. "Bond Rate, Loan Rate and Tobin's q in a Temporary Equilibrium Model of the Financial Sector," Metroeconomica, Wiley Blackwell, vol. 50(3), pages 351-385, October.
    12. Carl Chiarella & Peter Flaschel, 1999. "Applying Disequilibrium Growth Theory: Debt Effects and Debt Deflation," Computing in Economics and Finance 1999 714, Society for Computational Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carl Chiarella & Peter Flaschel & Gangolf Groh & Carsten Köper & Willi Semmler, 1999. "Towards Applied Disequilibrium Growth Theory: VII Intensive Form and Steady State Calculation in the Case of Substitution," Working Paper Series 99, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Carl Chiarella & Peter Flaschel & Willi Semmler, 2001. "The macrodynamics of debt deflation," Chapters,in: Financial Fragility and Investment in the Capitalist Economy, chapter 7 Edward Elgar Publishing.
    3. Carl Chiarella & Peter Flaschel, 1999. "Towards Applied Disequilibrium Growth Theory: II Intensive Form and Steady State Analysis of the Model," Working Paper Series 94, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    4. Carl Chiarella & Peter Flaschel, 2003. "Towards Applied Disequilibrium Growth Theory: V Housing Investment Cycles, Private Debt Accumulation and Deflation," Working Paper Series 97, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    5. Carl Chiarella & Peter Flaschel, 1999. "Towards Applied Disequilibrium Growth Theory: I The Starting Model," Working Paper Series 93, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    6. Carl Chiarella & Peter Flaschel & Peiyuan Zhu, 2003. "Towards Applied Disequilibrium Growth Theory: IV Numerical Investigations of the Core 18D Model," Working Paper Series 96, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    7. Flaschel, Peter & Greiner, Alfred, 2012. "Flexicurity Capitalism: Foundations, Problems, and Perspectives," OUP Catalogue, Oxford University Press, number 9780199751587.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uts:wpaper:98. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford) or (Marina Grazioli). General contact details of provider: http://edirc.repec.org/data/sfutsau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.