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

Magacho, Guilherme and Spinola, Danilo (2022) Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment. Review of Political Economy. ISSN 0953-8259 (In Press)

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Abstract

This paper analyses the dynamic adjustment of supply and demand in Kaldorian growth models. We discuss how the growth rate of a country, given by demand constraints, adjusts towards the growth rate given by the supply-side, and vice-versa, presenting the necessary conditions and empirical plausibility for these adjustments. The Palley-Setterfield approach brings a possible reconciliation to supply- and demand- long-term growth rates. However, this approach have some important empirical drawbacks, and we raise many considerations about the labour market in order to capture their analysis in a common framework. In this sense, we draw from the criticism developed by McCombie, and synthetize his view in terms of complete endogeneity, in a way in which employment adjusts immediately to guarantee equilibrium between supply and demand. The main contribution of the paper is to propose a theoretical reconciliation between the Palley-Setterfield and the McCombie approaches, presenting an initially simple model focused in a labour market adjustment, in which both types of adjustments represent extreme cases. We also discuss the theoretical possibility and the characteristics of hysteresis effects that lead to intermediate cases.

Item Type: Article
Dates:
DateEvent
20 October 2022Accepted
Uncontrolled Keywords: economic adjustment, demand-led growth, natural rate of growth, Kaldorian growth models
Subjects: CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics
Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User: Danilo Sartorello Spinola
Date Deposited: 02 Nov 2022 09:30
Last Modified: 02 Nov 2022 09:30
URI: https://www.open-access.bcu.ac.uk/id/eprint/13688

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