EconPapers    
Economics at your fingertips  
 

Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach

Federico Bassi () and Dany Lang ()

Economic Modelling, 2016, vol. 52, issue PA, 35-49

Abstract: This paper shows that negative economic shocks can have permanent effects on potential output—the amount that can be produced if the economy is at full capacity. In order to do so, we build an agent-based model of growth and distribution where heterogeneous firms adjust capital accumulation discontinuously because of sunk costs and of market constraints. This economy is characterized by a particular form of path dependency, “genuine hysteresis”: the most important temporary shocks affect potential output permanently. The results of the simulations implemented show indeed that austerity policies that trigger debt deleveraging, precautionary saving and wage tightening affect negatively the long-run path of the economy. As a matter of consequence, our paper sheds some light on issues that many European countries have been facing since 2008, and puts into question the possibility for most of these countries to reach the pre-crisis rates of growth. The most likely scenario for Europe in the upcoming decades is therefore a chronicle underutilization of fixed productive capacity and labour force.

Keywords: Potential output; Hysteresis; Path-dependency; Post-Keynesian–Kaleckian model of growth and distribution; Agent-based models (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999315001777
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Investment hysteresis and potential output: a post-Keynesian-Kaleckian agent-based approach (2016)
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:eee:ecmode:v:52:y:2016:i:pa:p:35-49

DOI: 10.1016/j.econmod.2015.06.022

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-05-30
Handle: RePEc:eee:ecmode:v:52:y:2016:i:pa:p:35-49