Keynesian disequilibrium dynamics: Estimated convergence, roads to instability and the emergence of complex business fluctuations

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dc.contributor.author Chiarella, C
dc.contributor.author Hung, H
dc.contributor.author Flaschel, P
dc.date.accessioned 2011-02-07T06:26:07Z
dc.date.issued 2010-01
dc.identifier.citation QFRC Research Paper, 2010
dc.identifier.other W1 en_US
dc.identifier.uri http://hdl.handle.net/10453/13931
dc.description.abstract We reformulate the traditional AS-AD growth model of the Neoclassical Synthesis (stage I) with a Taylor policy rule replacing the conventional LM-curve, with gradually adjusting wages as well as prices, and with perfect foresight on current inflation rates and an adaptively revised notion of an inflationary climate in which the economy is operating. We compare this approach with the New Keynesian approach, the Neoclassical Synthesis, stage II, with staggered price and wage setting and find various common components, yet with radically different dynamic implications due to our treatment of the forward-looking part of our wage-price spiral. We show for a system estimate of our model that it implies qualitatively local asymptotic stability and when its estimated form is simulated in response to isolated shocks strongly damped business fluctuations, due to a stable interaction of goods market dynamics with the interest rate policy of the central bank and due to a normal working of a real-wage feedback chain. These results are however endangered â leading in fact to economic breakdown â when there is a global floor to money wage inflation rates. In this case, the return of some money wage flexibility in deep depressions is of help in restoring viability of the model, thereby even avoiding explosive dynamics and the collapse of the economy. This situation leads to viable, but complex business fluctuations
dc.title Keynesian disequilibrium dynamics: Estimated convergence, roads to instability and the emergence of complex business fluctuations
dc.parent QFRC Research Paper
dc.journal.number 3 en_US
dc.publocation Prague, Czech Republic en_US
dc.identifier.startpage 236 en_US
dc.identifier.endpage 262 en_US
dc.cauo.name BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 1401 Economic Theory
dc.personcode 030348
dc.personcode 716350
dc.percentage 100 en_US
dc.classification.name Economic Theory en_US
dc.classification.type FOR-08 en_US
dc.edition en_US
dc.custom en_US
dc.date.activity en_US
dc.location.activity en_US
dc.description.keywords DAS-DAD dynamics; wage and price Phillips curves; real interest effects; real wage effects; (in)stability; persistent business cycles; complex dynamics en_US
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Business
pubs.organisational-group /University of Technology Sydney/Faculty of Business/Finance
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Closed Access
utslib.copyright.date 2015-04-15 12:17:09.805752+10
utslib.collection.history Closed (ID: 3) [2015-05-15T14:24:19+10:00]


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