A Descriptive Growth Model with Unemployment

Mark Pingle, Federico Guerrero, Mina Mahmoudi and Rattaphon Wuthisatian

Journal of Economic Behavior & Organization, 2023, vol. 212, issue C, 482-500

Abstract: We modify the standard descriptive growth model to incorporate what Keynes (1936) called the “essence” of his general theory. The essence is that exogenous changes in investment cause changes in employment and unemployment. We implement this idea by assuming the path for the capital growth rate is exogenous, which implicitly indicates that the significant fluctuations in investment do not result from rational calculation but rather result from what Keynes labelled “animal spirits.” Testing the Keynes hypothesis using post-WWII U.S. data, we find that changes in investment Granger-cause changes in unemployment but the reverse is not supported by the data.

Keywords: Growth theory; unemployment; essence of Keynes; economic fluctuations (search for similar items in EconPapers)
JEL-codes: E12 O41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:212:y:2023:i:c:p:482-500

DOI: 10.1016/j.jebo.2023.05.026

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