A two-sector model with target-return pricing in a stock-flow consistent framework

Jung Hoon Kim and Marc Lavoie

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Abstract: In this paper, we build a generalized Kaleckian two-sector model in a closed economy and explore the dynamics towards long-run positions. The model incorporates conflicting claims of labour and firms over income distribution and endogenous labour-saving technical progress. Adopting a stock-flow consistent framework, our simulation experiments yield the following results. First, the ‘paradox of thrift' and the ‘paradox of costs' hold, but the magnitude of the impact depends on the initial status of income distribution and monetary policy. Second, changes in autonomous labour-saving innovation might explain the phenomenon of the "new economy" of the second half of the 1990s within an alternative framework. Our model reinforces a post-Keynesian growth theory where aggregate demand is the crucial determinant of long-run positions as well as short-run positions, and shows that economic growth is demand-led and characterized by ‘path-dependency'.

Date: 2016
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Published in Economic Systems Research, 2016, (in press)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01343733

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