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Harrodian instability in decentralized economies: an agent-based approach

Emanuele Russo

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: This paper presents a small-scale agent-based extension of the so-called neo-Kaleckian model. The aim is to investigate the emergence of Harrodian instability in decentralized market economies. We introduce a parsimonious microfoundation of investment decisions. Agents have heteroge- neous expectations about demand growth and set idiosyncratically their investment expendi- tures. Interactions occur through demand externalities. We simulate the model under different scenarios. First, when heterogeneity is ruled out, Harrodian instability is showed to emerge as for the aggregate model. Instead, when heterogeneity is accounted for, a stable dynamics with endogenous fluctuations arises. At the same time, in this second scenario, all the Keynesian implications are preserved, including the presence of macroeconomic paradoxes. Sensitivity analysis confirms the general robustness of our results and the logical consistency of the model.

Keywords: Harrodian Instability; Agent-Based Models; Coordination Failures; Heterogeneous Expectations; Neo-Kaleckian model (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-mac, nep-pke and nep-upt
Date: 2017-07-13
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2017/17

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