An elementary business cycle mechanism: learning from Harrod and Kaldor

Franke Reiner ()
Additional contact information
Franke Reiner: Department of Economics, University of Kiel, Wilhelm-Seelig-Platz 1,Kiel 24118, Germany

Studies in Nonlinear Dynamics & Econometrics, 2019, vol. 23, issue 5, 18

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 market potential. This reaction establishes a fundamental stabilizing mechanism for the economy. The paper adapts the idea to the growth context of a neo-Kaleckian baseline model, where its destabilizing Harrodian sentiment adjustments are specified in a canonical and microfounded way that introduces a natural nonlinearity into the global dynamics. Supposing local instability, the resulting two-dimensional system is shown to generate persistent self-sustaining cyclical behaviour. In addition, the model is numerically calibrated to period and amplitude of the US business cycle. On the whole, based on an old and almost forgotten conception, the paper advances a most elementary approach to business cycle modelling.

Keywords: Harrodian instability; capacity effects; nonlinear sentiment adjustments; phase diagrams; numerical calibration (search for similar items in EconPapers)
JEL-codes: C13 E12 E30 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/snde-2017-0106 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

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:bpj:sndecm:v:23:y:2019:i:5:p:18:n:3

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/snde/html

DOI: 10.1515/snde-2017-0106

Access Statistics for this article

Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach

More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().