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Finance And The Macroeconomic Process In a Classical Growth And Cycles Model

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  • Jamee K. Moudud

    (The Jerome Levy Economics Institute)

Abstract

The aim of this paper is to derive an endogenous growth and cycles model which integrates the sectoral incomes, expenditures, and finance requirements into an ex ante social accounting matrix (SAM) in the spirit of the Cambridge Economic Policy Group. The SAM includes households, businesses, a banking sector with non-zero net worth, and the government. Investment in circulating capital, endogenous bank credit to finance accumulation and the negative feedback effect of debt on investment are at the core of the short-run cyclical dynamics. The business cycle dynamics are described by the dual disequilibria relationship which relates monetary and goods market disequilibria to each other. Market disequilibria result from the discrepancy between ex ante plans and expectations and ex post outcomes. The short-run cycle in the model is the 3-5 inventory cycle in which aggregate demand and supply chase each other ceaselessly in order to reach equilibrium. Firms respond to excess demand by lowering inventory stocks and increasing investment in circulating capital which expands output via the Léontief input-output relationship. Over the medium run, they respond to imbalances between actual and normal capacity by increasing fixed capital investment. Over the medium to long run, the path of accumulation is internally financed and regulated by the rate of profit. One can conclude that the macrodynamic model is a synthesis of the Physiocrats' "circular flow" approach to modeling the economy and the endogenous growth perpective of some classical economists, von Neumann, and Harrod. Finally, the endogenous cyclical dynamics are very much in the spirit of Kalecki and Minsky.

Suggested Citation

  • Jamee K. Moudud, 1998. "Finance And The Macroeconomic Process In a Classical Growth And Cycles Model," Macroeconomics 9811002, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9811002 Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 58; figures: included
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    File URL: http://econwpa.repec.org/eps/mac/papers/9811/9811002.pdf
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    References listed on IDEAS

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    1. Rivlin, Alice M, 1984. "Reform of the Budget Process," American Economic Review, American Economic Association, pages 133-137.
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    Cited by:

    1. Guillermo Gigliani, 2014. "The Reform of the Federal Reserve in 2008: Is the Money Supply Endogenous or Exogenous?," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, pages 73-94.
    2. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
    3. Jamee K. Moudud, 2000. "Crowding In or Crowding Out? A Classical-Harrodian Perspective," Macroeconomics 0012001, EconWPA.

    More about this item

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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