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Complex Price Dynamics in the Modified Kaldorian Model

Jan Kodera, Quang Tran and Miloslav Vošvrda ()

Prague Economic Papers, 2013, vol. 2013, issue 3, 358-384

Abstract: In this article we analyse a neoclassical model of inflation. Our aim is to reconstruct the neoclassical theory of inflation to obtain a model which generates non-periodical oscillations of price level. This model is considered to be a realistic approximation of actual price level evolution. We start our analysis with the Fisherian equation of exchange. The assumption on non-variability of the velocity of money circulation parameter is relaxed in favour of dependence on expected inflation. The resulting model of inflation is a two-equation model where price evolution depends on production dynamics which is assumed to be an exogenous variable. After that, the two-equation model is re-formulated as an autonomous system to a model where production dynamics is determined by a Kaldorian type's model. By adding Kaldor's model to the two equation system, we create a four equation model. Both our models are able to generate more complex dynamics, i.e. non-linear cycles and chaos, which we examine by generating time series from numerical example and analyse them with the help of an advanced non-linear method.

Keywords: Price dynamics; two-equation model; four-equation model; numerical examples; non-linear time series analysis (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.18267/j.pep.457

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