Corridor stability of the Kaleckian growth model: a Markov-switching approach

Brian Hartley

No 2013, Working Papers from New School for Social Research, Department of Economics

Abstract: To assess the conditional stability properties of the Kaleckian growth framework in the mediumrun, we investigate behavioral corridors where investment will be unresponsive to departures of actual from desired utilization rates - thus providing for the episodic incidence of Harrodian instability. We empirically assess this relationship using two-state Markov-Switching Structural Vector Auto-Regression fit on non-residential fixed investment and the rate of capacity utilization for the United States. To directly assess the relevance of a behavioral corridor for the cyclical dynamics of the endogenous variables, the probabilities governing the transition between hidden states are modelled as a time-varying function of gap between realized utilization rates and their long-run average. Results suggest the response of investment to structural utilization shocks is highly regime-dependent and predominantly occurs during business cycle downturns.

Keywords: Kaleckian Growth Model; Growth and Distribution; Harrodian Instability; Hidden Markov Models; Structural Vector Auto-Regression; Bayesian Econometrics (search for similar items in EconPapers)
JEL-codes: B50 C11 E11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-10, Revised 2020-11
New Economics Papers: this item is included in nep-hme, nep-mac, nep-ore and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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