Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment

Magacho, Guilherme and Spinola, Danilo (2021) Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment. Working Paper 10. Centre for Applied Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University, Birmingham. (Submitted)

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Abstract

This paper analyses the dynamic adjustment of supply and demand in Kaldorian growth models. We aim at discussing how the growth rate of a country, given by demand constraints, adjust towards the growth rate given by the supply-side, and vice-versa, presenting the necessary conditions for those adjustments. Our main conclusion is that if there are no capital constraints, firms invest to maintain a constant desired level of capital utilization. Depending on specific conditions, however, an economy may face labour constraints, which would require an adjustment mechanism on employment. The Palley-Setterfield approach brings a possible reconciliation to supply- and demand- long-term growth rates. However, we must raise some considerations about the labour market in order to understand the characteristics of this approach. We draw from the critique by McCombie, in which employment adjusts immediately to guarantee equilibrium between supply and demand. We propose reconciliation between the Palley-Setterfield and the McCombie approaches, presenting a model focused in a labour market adjustment, in which both types of adjustments represent extreme cases, discussing the existence and the characteristics of intermediate cases.

Item Type: Monograph (Working Paper)
Identification Number: 10
Date: 24 January 2021
Uncontrolled Keywords: economic adjustment, demand-led growth, natural rate of growth, Kaldorian growth models
Subjects: L100 Economics
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics
Depositing User: Danilo Sartorello Spinola
Date Deposited: 25 Jan 2021 10:33
Last Modified: 25 Jan 2021 10:33
URI: http://www.open-access.bcu.ac.uk/id/eprint/10787

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