Time variation in the size of the multiplier: a Kalecki-Harrod approach

Mark Setterfield

No 1522, Working Papers from New School for Social Research, Department of Economics

Abstract: A growing empirical literature demonstrates that the size of the expenditure multiplier varies over time, being both larger and consistently greater than one during periods of slow growth and/or recession. This paper contributes to the theory of the time-varying multiplier. It is shown that a combination of Kalecki’s dynamic theory of investment and Harrod’s “satisficing” approach to the investment decision furnish a theory in which the “crowding in” of investment expenditures following an initial demand stimulus (fiscal or otherwise) gives rise to an elevated expenditure multiplier during times of pronounced macroeconomic distress.

Keywords: Multiplier; investment; crowding in; Kalecki; Harrod (search for similar items in EconPapers)
JEL-codes: E11 E12 E22 E32 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2015-09, Revised 2017-01
New Economics Papers: this item is included in nep-mac and nep-pke
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http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_222015.pdf First version, 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1522

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