Looking for the rationale of the instability principle in Harrod’s Essay in dynamic theory: who is adjusting what?

Rodolphe Dos Santos Ferreira

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Abstract: Instability of the warranted growth path, an important property for business cycle theory, is central to Harrod's Essay. It is persuasively presented as the consequence of moving from statics (where stability is viewed as the normal case) to dynamics. How exactly? The paper suggests two reasons. The first lies in attributing to demanders (firms as investors) rather than to suppliers (firms as producers) the main response to market imbalances. The second results from the insidious introduction of an extrapolative component of expectations in Harrod's dynamic approach, replacing levels by trends and confining them to a single point in time.

Keywords: Harrodian instability; Macro-dynamic analysis; Error correction; Extrapolative expectations (search for similar items in EconPapers)
Date: 2020-07-03
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Published in European Journal of the History of Economic Thought, 2020, 27 (4), pp.549-563. ⟨10.1080/09672567.2020.1768424⟩

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Journal Article: Looking for the rationale of the instability principle in Harrod’s Essay in dynamic theory: who is adjusting what? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03208051

DOI: 10.1080/09672567.2020.1768424

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