A methodological problem in a supermultiplier model with too much acceleration

Reiner Franke

Metroeconomica, 2022, vol. 73, issue 1, 93-108

Abstract: This contribution is a critical reconsideration of the supermultiplier model put forward by Serrano, Freitas and Bhering (2019; ‘SFB’) in this journal (Metroeconomica, 70, 263–287). Reformulating their discrete‐time model in a way that makes the length of the adjustment period explicit, it aks whether two elementary postulates of a sound modelling are satisfied: (a) A model should also remain well‐defined when the adjustment period shrinks to zero; (b) The main qualitative dynamic properties should not essentially be affected by the choice of the adjustment period. It is found that postulate (a) is fulfilled but, regarding the presence of cyclical dynamics, postulate (b) is violated. In addition, the stability condition in the continuous‐time version has an unsatisfactory economic implication. On the other hand, a rival supermultiplier model (specified along the lines proposed by, in particular, Allain and Lavoie) is spared from these problems. The analysis suggests that the problem in SFB is caused by too strong an accelerator mechanism.

Date: 2022
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