Demand-driven inequality, endogenous saving rate and macroeconomic instability

Soon Ryoo

Cambridge Journal of Economics, 2016, vol. 40, issue 1, 201-225

Abstract: This article examines consumption dynamics in a Cambridge model of growth and distribution. The model endogenises the workers’ saving rate and incorporates out-of-equilibrium dynamics explicitly. The analysis identifies a new mechanism of macroeconomic instability that emerges from the interaction between the Kaldorian process of demand-driven inequality and the workers’ saving behaviour. The mechanism can generate perpetual cycles where the upwards phase is characterised by a prolonged period of falling saving rate and increasing income inequality. The article discusses the empirical relevance of the formal analysis. The article discusses the empirical relevance of the analytic results.

Date: 2016
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