Destabilizing a stable crisis: Employment persistence and government intervention in macroeconomics

B. Costa Lima, M.R. Grasselli, X.-S. Wang and JunJie Wu

Structural Change and Economic Dynamics, 2014, vol. 30, issue C, 30-51

Abstract: The basic Keen model is a three-dimensional dynamical system describing the time evolution of the wage share, employment rate, and private debt in a closed economy. In the absence of government intervention this system admits, among others, two locally stable equilibria: one with a finite level of debt and nonzero wages and employment rate, and another characterized by infinite debt and vanishing wages and employment. We show how the addition of a government sector, modelled through appropriately selected functions describing spending and taxation, prevents the equilibrium with infinite debt. Specifically, we show that, by countering the fall in private profits with sufficiently high government spending at low employment, the extended system can be made uniformly weakly persistent with respect to the employment rate. In other words, the economy is guaranteed not to stay in a permanently depressed state with arbitrarily low employment rates.

Keywords: Government intervention; Persistence; Keen model; Stock-flow consistency (search for similar items in EconPapers)
JEL-codes: C65 E24 E62 G01 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0954349X14000186
Full text for ScienceDirect subscribers only

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:eee:streco:v:30:y:2014:i:c:p:30-51

DOI: 10.1016/j.strueco.2014.02.003

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().