Animal Spirits, Keynesian stability, and the relationship between distribution and growth

Mark Setterfield

No 2501, Working Papers from New School for Social Research, Department of Economics

Abstract: Two salient features of the canonical Kaleckian growth model are the Keynesian stability condition and the paradox of costs. Both of these features are controversial. Harrodians contest the Keynesian stability condition on the grounds that it understates the reaction of investment spending to variations in the capacity utilization rate. Meanwhile, neo-Goodwinians argue that the demand regime is profit-led. A third salient feature of the Kaleckian model, following the contributions of Joan Robinson, is its assumption that the parameters of the investment function are conditioned by animal spirits. This paper shows that the treatment of animal spirits can affect both of the first two salient features of the Kaleckian model mentioned above. Specifically, it is shown that allowing for variation in animal spirits can: reconcile the Keynesian stability condition with the observation that there is a greater reaction of investment spending than saving to variation in the rate of capacity utilization; and complicate the effects of distribution on growth in an otherwise intrinsically wage-led economy.

Keywords: Animal spirits; Keynesian stability condition; paradox of costs; wage-led growth; shifting equilibrium; pseudo-instability (search for similar items in EconPapers)
JEL-codes: E11 E12 E22 E25 O41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2025-01
New Economics Papers: this item is included in nep-hme and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.economicpolicyresearch.org/econ/2025/NSSR_WP_012025.pdf First version, 2025 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:2501

Access Statistics for this paper

More papers in Working Papers from New School for Social Research, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mark Setterfield ().