Abstract
In this chapter we consider the general CTD growth model of chapters 7 and 8 on a level that allows for a compact presentation of a type of core dynamics of the general 39D system which is basically linear in the assumed behavior of the economy, but is nevertheless intrinsically nonlinear due to interdependence of the remaining 18 state variables in the form of products, ratios, the occurrence of growth rate equations and the like.1 In this form the laws of motion of the economy are easily understood with respect to their meaning and they provide a picture of an economy evolving in disequilibrium where quantities, prices, expectations, stocks and flows, in particular factor endowments, a housing sector, the government budget constraint, asset markets, and various fiscal and monetary policy all interact with each other, yet still without substitution between capital, labor, imports as well as domestic and exported commodities and also without wealth effects in consumption. Section 9.2 lists the changes that allow to reduce the model of chapter 7 to a 18 D system whose laws of motion and steady state analysis are provided in section 9.3 and 9.4, respectively.
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References
This chapter is based on the material provided in Chiarella and Flaschel (1999f, g, h), Chiarella, Flaschel and Zhu (1999a, b, c).
This assumption will be further modified and simplified when the 18D core dynamics is introduced.
See Chiarella and Flaschel (1999f) for the details of such an approach which neglects cash management and uses a Taylor type interest rate policy rule in the place of a money supply rule.
Where the last one stands for goods-market equilibrium in the steady state
Which in turn determines the prices p x , p m .
The same holds true for the disposable income of asset holders y D c .
Since output and sales per unit of capital are predetermined through tax independent supply side features and the world growth rate.
Which however can also be reformulated in terms of real magnitudes
See Flaschel and Groh (1998) for a further discussion of the properties of this monetary policy rule.
The fraction in front of the first equation as usual assumed as being positive.
Where the first one is independent of the changes of the exchange rate.
There are further simple restrictions on the parameters of the model due to the economic meaning of the variables employed.
Compare also again our methodological consideration of chapter 3.
Note however that household demand is discussed in per capita terms.
See however chapter 6 for a theoretical modification of our KMG growth dynamics which moves closer to Fair’s understanding of goods and labor market dynamics and an endogenous determination of the labor market NAIRU this may entail.
Which may be zero, see chapter 2, 6 for a discussion of such nonlinearities.
See also Fair (1984, Ch.4.1.3.) in this regard.
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© 2000 Springer-Verlag Berlin Heidelberg
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Chiarella, C., Flaschel, P., Groh, G., Semmler, W. (2000). Ways Ahead: Analyzing Structural Macroeconometric Model Building. In: Disequilibrium, Growth and Labor Market Dynamics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-04070-6_9
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DOI: https://doi.org/10.1007/978-3-662-04070-6_9
Publisher Name: Springer, Berlin, Heidelberg
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