Supermultipliers, ‘endogenous autonomous demand’ and functional finance

Peter Skott, Júlio Fernando Costa Santos and José Luís Oreiro

Metroeconomica, 2022, vol. 73, issue 1, 220-244

Abstract: Recent supermultiplier models view autonomous demand as the driver of long‐run growth and as the key stabilizer of Harrodian instability. Attempts to endogenize autonomous demand effectively undermine the existence of a supermultiplier, however, and models with ‘endogenous autonomous demand’ show strong similarities with an earlier literature on feedback effects from the labor markets to aggregate demand. Government consumption could in principle be a source of exogenous autonomous demand in the long run. But an active fiscal policy guided by principles of functional finance can produce more powerful stabilization, avoid overheating and excessive utilization rates, and secure faster adjustments of the growth rate toward its target level.

Date: 2022
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