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Demand-led growth and accommodating supply

Steven Fazzari (), Piero Ferri and AnnaMaria Variato

No 15-2018, FMM Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This paper presents a "supermultiplier" model in which the growth of autonomous demand (demand independent of the state of the economy) determines the steady-state growth rate of output. With reasonable parameters, endogenous adjustment of labor supply and productivity causes supply to accommodate the demand-led growth path, reconciling Harrod's warranted rate of demand growth with the growth of supply. The model delivers a range of feasible aggregate growth paths and unemployment rates rather than a single "natural rate." The results explain how economies can become trapped with low growth due to weak demand or fiscal austerity and suggest policy responses to "secular stagnation."

Keywords: demand-led growth; autonomous demand; supermultiplier; aggregate demand and supply reconciliation; secular stagnation (search for similar items in EconPapers)
JEL-codes: E12 O40 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pke
Date: 2018
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