A New Theory of Demand-Restricted Growth: The Basic Idea

Thomas Gries

The American Economist, 2020, vol. 65, issue 1, 11-27

Abstract: In mainstream theory, growth is explained fully by elements of the supply side. In this article, we depart from neoclassical mechanisms and suggest a hybrid approach that allows for growth restrictions induced by demand-side elements. We obtain such demand-restricted growth by suggesting an unconventional equilibrium concept in a stochastic environment. We define macroeconomic equilibrium as stationary no-expectation-error equilibrium. This equilibrium concept relates to the Nash idea of individual stationary behavior as long as expectations prove to be realized. No rigidities are introduced. Even if potential growth is generated by technical change and capital accumulation, the growth path is restricted by effective earnings and can be stable below the neoclassical path of potential growth. However, the growth process mutates to the neoclassical process if effective earnings and potential earnings equalize. Therefore, our hybrid model could help to bridge a gap between Keynesian and neoclassical ideas of economic growth. JEL Classifications : E12, E13, O40, E60

Keywords: Demand-restricted growth; no-expectation-error equilibrium; neoclassical growth theory (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:65:y:2020:i:1:p:11-27

DOI: 10.1177/0569434519846477

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