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Unemployment, income distribution and debt-financed investment in a growth cycle model

Serena Sordi and Alessandro Vercelli

Journal of Economic Dynamics and Control, 2014, vol. 48, issue C, 325-348

Abstract: As recent experience suggests, the most significant economic fluctuations are those that combine real and financial factors. This paper works out a simple model that couples a version of Goodwin׳s (1967) growth cycle model of real fluctuations with insights drawn from a model of financial fluctuations based on Minsky׳s financial instability hypothesis (Vercelli, 2000; Sordi and Vercelli, 2006, 2012). The model suggested substantially modifies that of Keen (1995), who combined insights from Goodwin and Minsky within a model of fluctuating growth. In the real part of the modelwe introduce the possibility of disequilibrium in the goods market and formalize a mechanism of output adjustment based on the conventional dynamic multiplier. The model so obtained may exhibit persistent dynamics and provide insights to enable better understanding of the nature of real-world fluctuations.

Keywords: Growth cycle; Goods market disequilibrium; Goodwin; Minsky; Financial instability; Real/financial interaction (search for similar items in EconPapers)
JEL-codes: B41 C61 E12 E32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jedc.2014.09.030

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