Keynesian Dynamics and the Wage Price Spiral. A Baseline Disequilibrium Approach

Toichiro Asada, Pu Chen, Carl Chiarella and Peter Flaschel
Additional contact information
Toichiro Asada: Faculty of Economics, Chuo University

Macroeconomics from University Library of Munich, Germany

Abstract: We reformulate and extend the standard AS-AD growth model of the Neoclassical Synthesis (Stage I) with its traditional microfoundations. The model still has an LM curve in the place of a Taylor interest rate rule, exhibits sticky wages as well as sticky prices, myopic perfect foresight of current inflation rates and adaptively formed medium run expectations concerning the investment and inflation climate in which the economy is operating. The resulting nonlinear 5D model of labor and goods market disequilibrium dynamics avoids striking anomalies of the standard model of the Neoclassical synthesis (Stage I). It exhibits instead Keynesian feedback dynamics proper with in particular asymptotic stability of its unique interior steady state for low adjustment speeds and with cyclical loss of stability – by way of Hopf bifurcations – when some adjustment speeds are made suficiently large, even leading to purely explosive dynamics sooner or later. In such cases downward money wage rigidity can be used to make the dynamics bounded and thus viable. In this way we obtain and analyze a baseline DAS-AD model with Keynesian feedback channels whose rich set of stability features is the source of business cycle fluctuations. These outcomes of the model stand in contrast to those of the currently fashionable New Keynesian alternative (the Neoclassical Synthesis, Stage II) that we suggest is more limited in scope.

Keywords: DAS-AD growth; wage and price Phillips curves; real interest effects; real wage effects; (in)stability; persistent business cycles; inflation and deflation (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2004-09-01
New Economics Papers: this item is included in nep-mac
Note: Type of Document - pdf; pages: 41
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0409/0409001.pdf (application/pdf)

Related works:
Working Paper: Keynesian Dynamics and the wage price spiral. A baseline disequilibrium approach (2004)
Working Paper: Keynesian Dynamics and the Wage-Price Spiral: A Baseline Disequilibrium Model (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0409001

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).