Neoclassical stability and Keynesian instability: A two‐sector disequilibrium approach

Shogo Ogawa

Metroeconomica, 2022, vol. 73, issue 2, 481-513

Abstract: In this study, we construct a simple disequilibrium growth model to explore the dynamic property of effective demand. This study’s main concern is the effect of the quantity constraint: How do the quantities of consumption and investment goods demand and the productive capacity affect capital accumulation? To answer this, we build a two‐sector growth model with quantity constraints. Our model has multiple steady states in classical (supply‐led) regime and Keynesian (demand‐led) regime. The former is locally stable, but the latter is unstable. The instability of Keynesian steady state is amplified by the multiplier effect and shows how deep depression occurs.

Date: 2022
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