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Harrod's long‐range capital outlay as a stabilizer of Harrodian instability

Reiner Franke

Metroeconomica, 2019, vol. 70, issue 2, 302-312

Abstract: Drawing on Harrod, Kalecki and Kaldor, this paper seeks to revive the view that ceteris paribus firms reduce investment if they have already built up high capacities relative to their assessment of the normal potential of their markets. This reaction introduces a fundamental stabilizing mechanism into the economy. The paper adapts the idea to a growth context and applies it to the neo‐Kaleckian baseline model with its Harrodian instability. It demonstrates that, in principle, a sufficiently strong feedback could stabilize the steady state.

Date: 2019
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Handle: RePEc:bla:metroe:v:70:y:2019:i:2:p:302-312