Endogenous Growth, Price Stability and Market Disequilibria

Orlando Gomes

No ercwp0608, Working Papers Series 1 from ISCTE-IUL, Business Research Unit (BRU-IUL)

Abstract: Resorting to an endogenous growth framework, the paper studies the implications of taking market clearing as a long term possibility rather than an every period implicit assumption, as is conventional in growth analysis. Under the proposed setup, the system may converge to a market equilibrium outcome in the same way it can converge to a state of constant growth; however, local instability may deviate the economy from the long run stable result. The underlying main assumption respects to an adjustment mechanism in which: (i) transitional dynamics are characterized by the persistence of an accumulated market imbalance; (ii) monetary authorities are able to guarantee price stability. The implications of this modelling structure are the following: (a) a market clearing equilibrium may co-exist with other equilibrium points; (b) several types of stability outcomes are obtainable; (c) monetary policy becomes relevant for growth.

Keywords: Endogenous Growth; Non-equilibrium Models; Keynesian Macroeconomics; Local Stability analysis; monetary policy. (search for similar items in EconPapers)
JEL-codes: C62 E12 O41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2008-06-15
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Journal Article: ENDOGENOUS GROWTH, PRICE STABILITY AND MARKET DISEQUILIBRIA (2010)
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