Credit-Driven Investment, Heterogeneous Labor Markets and Macroeconomic Dynamics

Matthieu Charpe, Peter Flaschel, Hans-Martin Krolzig, Christian Proaño, Willi Semmler and Daniele Tavani

No 1301, Working Papers from New School for Social Research, Department of Economics

Abstract: In this paper we set up a baseline, but nevertheless advanced and complete model rep-resenting detailed goods market dynamics, heterogeneous labor markets, dual and cross-dual wage-price adjustment processes, as well as counter-cyclical government policies. The cyclical movements of output generates, through Okun's law, employment variations in the heterogeneous labor market. The core of the resulting Keynesian macrodynamics is however given by credit-financed investment behavior and loan-rate setting by credit suppliers. The framework is constructed in such way that simplified, lower dimensional versions of the model can be obtained by setting parameters describing specific feedback effects from one sector to another equal to zero. Starting from such low dimensional sub-dynamics, we show the local stability of the full 7D model through a "cascade of stable matrices" approach if the feedback chains are sufficiently tranquil in their trans-mission mechanisms. However, local stability is the point of departure for the numerical investigation of local explosiveness and the forces that can bound such a behavior.

Keywords: Macroeconomic (In-)Stability; Segmented Labor Markets; Business Cycles; Fiscal and Monetary Policy Rules (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 E52 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-03
New Economics Papers: this item is included in nep-mac and nep-pke
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http://www.economicpolicyresearch.org/econ/2013/NSSR_WP_012013.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Credit-driven investment, heterogeneous labor markets and macroeconomic dynamics (2015)
Working Paper: Credit Driven Investment, Heterogeneous Labor Markets and Macroeconomic Dynamics (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1301

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