Foundations for a Disequilibrium Theory of the Business Cycle: Qualitative Analysis and Quantitative Assessment

Description

Building on The Dynamics of Keynesian Monetary Growth by Chiarella and Flaschel (2000), this book is a key contribution to business cycle theory, setting out a disequilibrium approach with gradual adjustments of the key macroeconomic variables. Its analytic study of a deterministic model of economic activity, inflation and income distribution integrates elements in the tradition of Keynes, Metzler and Goodwin (KMG). After a qualitative analysis of the basic feedback mechanisms, the authors calibrate the KMG model to the stylized facts of the business cycle in the U.S. economy, and then undertake a detailed numerical investigation of the local and global dynamics generated by the model. Finally, topical issues in monetary policy are studied in small macromodels as well as for the KMG model by incorporating an estimated Taylor-type interest rate reaction function. The stability features of this enhanced model are also compared to those of the original KMG model.

Carl Chiarella is Professor of Quantitative Finance in the School of Finance and Economics at the University of Technology, Sydney. Peter Flaschel is Professor of Economics at the University of Bielefeld. Reiner Franke is a member of the Institute of Monetary Economics at the Technical University, Vienna.

'Chiarella, Flaschel, and Franke have honed traditional stability analysis of aggregative macroeconomic models into an astonishingly penetrating critical tool. Their dispassionate and balanced study of current macroeconomic approaches throws much light on the conceptual contradictions that trouble this field, and motivate their suggested remedy, a return to a thorough disequilibrium dynamics in the tradition of Keynes, Metzler, and Goodwin. No serious student of mathematical macroeconomics working within any framework can afford to ignore this research and its implications.' Duncan K. Foley, Leo Model Professor, Department of Economics, New School University 'After three diversionary decades, it is high time theorists resumed study of economic adjustments out-of-equilibrium unencumbered by assumptions appropriate for microeconomic equilibrium but invalid at the macroeconomic level. The authors of this book have met this challenge with a carefully composed dynamic analysis of aggregate demand and supply. It incorporates the ingredients of classic works of the mid twentieth century in a new synthesis that refocuses the subject on the market economy's endogenous tendency to fluctuate around a positive growth trend. It will be an essential reference for anyone who wants to understand the behavior of economic aggregates and the policy problems associated with them.' Richard Day, Professor of Economics, University of Southern California ' ... icy-relevant approach to macroeconomic analysis decisively forward. Their careful synthesis of realistic dynamic elements and their careful analysis of the sensitivity and stability characteristics of their model in a policy context is much to be admired. In this book the Bielefeld School achieves a genuine culmination of great depth and breadth.' J. Barkley Rosser, Jr., James Madison University (from the Foreword)