Keynesian monetary growth dynamics in open economies

Baltzer Sci Publ Bv
Publication Type:
Journal Article
Annals Of Operations Research, 1999, 89 pp. 35 - 59
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We investigate an open economy monetary growth model with sluggish price and quantity adjustments. It integrates the real dynamics of Rose's employment cycle, an inflationary dynamics of Cagan type, Metzlerian inventory dynamics and Dornbusch's exchange rate dynamics, implying eight laws of motion, two for each subdynamics. These intrinsically nonlinear 8D dynamics are asymptotically stable for low adjustment speeds of prices and expectations, give rise to Hopf bifurications as these adjustment parameters are increased and lead to cyclically explosive behavior thereafter. Two extrinsic nonlinearities are therefore added, one in capital flows and the other a kinked Phillips curve. These two nonlinearities modify the dynamics radically, limiting them to economically meaningful domains even for extreme parameter choices.
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