Keynesian monetary growth dynamicsin open economies

Carl Chiarella and Peter Flaschel

Annals of Operations Research, 1999, vol. 89, issue 0, 35-59

Abstract: We investigate an open economy monetary growth model with sluggish price and quantityadjustments. It integrates the real dynamics of Rose's employment cycle, an inflationarydynamics of Cagan type, Metzlerian inventory dynamics and Dornbusch's exchange ratedynamics, implying eight laws of motion, two for each subdynamics. These intrinsicallynonlinear 8D dynamics are asymptotically stable for low adjustment speeds of prices andexpectations, give rise to Hopf bifurcations as these adjustment parameters are increasedand lead to cyclically explosive behavior thereafter. Two extrinsic nonlinearities are thereforeadded, one in capital flows and the other a kinked Phillips curve. These two nonlinearitiesmodify the dynamics radically, limiting them to economically meaningful domains even forextreme parameter choices. Copyright Kluwer Academic Publishers 1999

Date: 1999
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DOI: 10.1023/A:1018992010740

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