Dynamic Macroeconomics

by Flaschel, Peter; Franke, Reiner; Semmler, Willi

• ISBN13: 9780262061919
• ISBN10: 0262061910
• Format: Hardcover
• Copyright: 1997-06-13
• Publisher: Mit Pr

Summary

Dynamic Macroeconomicsis an attempt to revitalize the traditions of nonmarket clearing approaches to macroeconomics. Using sophisticated tools from dynamic analysis, the authors introduce a consistent, integrated framework for disequilibrium macroeconomic dynamics and explore its relationship to the competing-and currently dominant-equilibrium dynamics. The book is organized into five parts. Part I covers background models of market-clearing and nonmarket-clearing approaches. Part II introduces short-run monetary models of macroeconomic fluctuations that build on the dynamic interaction of product, labor, and financial markets. Part III explores monetary instability in variants with capital accumulation and growth. Part IV explores supply and demand side Keynesian business cycles and monetary-type growth models. Part V considers the role of the financial sector as a source of instability and fluctuations.

Table of Contents

Series Foreword	ix	(2)
Preface	xi
1 General Introduction	1	(18)
1.1 Introduction	1	(1)
1.2 Market--Clearing Approach to Dynamic Macroeconomics	2	(2)
1.3 Nonmarket--Clearing Approach to Dynamic Macroeconomics	4	(2)
1.4 On Stylized Empirical Facts	6	(1)
1.5 Perspective of the Book	7	(3)
1.6 A Brief Outlook	10	(3)
1.7 Dynamic Tools and Econometric Issues	13	(1)
1.8 Notation and Abbreviations	14	(5)
I Market Mechanisms and Macrodynamics: Basic Models	19	(108)
2 Micro--and Macroeconomic Adjustment Mechanisms: A Brief Overview	23	(10)
2.1 Introduction	23	(1)
2.2 Microeconomic Adjustment Mechanisms	23	(4)
2.3 Macroeconomic Adjustment Mechanisms	27	(6)
3 Market Mechanisms and Boundedness of Market Fluctuations	33	(28)
3.1 Introduction	33	(1)
3.2 Walrasian Price--Quantity Adjustments	34	(10)
3.3 Keynesian and Composite Adjustment Processes	44	(4)
3.4 Proportional and Derivative Control	48	(9)
3.5 Concluding Remarks	57	(1)
3.6 Appendix: Market Adjustments and the Newton Method	58	(3)
4 Non-Neoclassical Variants of Dynamic Macroeconomics	61	(42)
4.1 Introduction	61	(2)
4.2 Instability in Real and Monetary Models	63	(10)
4.3 Boundedness in Real and Monetary Models	73	(8)
4.4 Classical Growth Dynamics and Viability	81	(9)
4.5 Supply--Driven Keynesian Growth Dynamics	90	(6)
4.6 Effective Demand in Classical Growth Dynamics	96	(5)
4.7 Some Conclusions	101	(2)
5 Neoclassical Variants of Dynamic Macroeconomics	103	(24)
5.1 Introduction	103	(2)
5.2 The Solow Version and the Labor Market	105	(4)
5.3 The Intertemporal Version of the Solow Model	109	(3)
5.4 Stochastic Growth and Equilibrium Business Cycles	112	(3)
5.5 Endogenous Technical Change and Growth	115	(6)
5.6 Growth, Money, and Finance	121	(5)
5.7 Concluding Remarks	126	(1)
II Price Flexibility, Nominal Rigidity, and Macrodynamics	127	(56)
6 Wage Flexibility and Stability in the Short Run	131	(16)
6.1 Introduction	131	(2)
6.2 The Walrasian Adjustment Process	133	(4)
6.3 The Keynesian Adjustment Process	137	(6)
6.4 Conclusion	143	(1)
6.5 Mathematical Appendix	144	(3)
7 Price Flexibility and Instability in the Medium Run	147	(36)
7.1 Introduction	147	(2)
7.2 In Defense of Adaptive Expectations	149	(7)
7.3 Adaptive Expectations and Extrapolative Regression Forecasts	156	(6)
7.4 Basic Features of the Tobin and the Sargent Model	162	(4)
7.5 The Case of Adaptive Expectations	166	(6)
7.6 The Case of Myopic Perfect Foresight	172	(4)
7.7 Conclusion	176	(1)
7.8 Appendix: Mathematical Proofs	177	(6)
III AD-AS and IS-LM Models of Monetary Growth	183	(84)
8 Keynesian Growth Dynamics, Perfect Foresight, and Viability	187	(40)
8.1 Introduction	187	(2)
8.2 RE Propositions in Fully Specified AD-AS Growth Models: A Reconsideration	189	(7)
8.3 Hyperperfect Foresight: An Exceptional Case in an Exceptional Environment	196	(14)
8.4 Myopic Perfect Foresight and Cyclical IS-LM Growth	210	(7)
8.5 IS-LM Growth Dynamics and Viability	217	(7)
8.6 Concluding Remarks	224	(3)
9 Adaptive Expectations or Myopic Perfect Foresight: The Wrong Alternative	227	(40)
9.1 Introduction	227	(6)
9.2 The AD-AS Growth Model in Discrete Time	233	(5)
9.3 A Numerical Analysis of the AE Case	238	(3)
9.4 AE and MPF I: Cases of No Difference	241	(6)
9.5 AE and MPF II: Why Can There Be a Difference?	247	(7)
9.6 AE and MPF III: The Basic Fallacy	254	(8)
9.7 Appendix: Forecasted Price Changes and Adaptive Learning	262	(5)
IV Supply and Demand Side Models of Keynesian Growth Dynamics	267	(68)
10 Supply Side Keynesianism and the Classical Growth Cycle	271	(28)
10.1 Introduction	271	(3)
10.2 A General Keynes--Wicksell Model of Monetary Growth	274	(4)
10.3 Local Stability Analysis	278	(1)
10.4 The Neoclassical Case: Savings and Monetary Growth	279	(2)
10.5 The Classical Case: Cross--Dual Monetary Growth Dynamics	281	(7)
10.6 Conclusions	288	(1)
10.7 Appendix 1: Stein (1982)	289	(3)
Appendix 2: Proofs of Theorems 10.1-10.3	292	(7)
11 Inflation, Distribution, and Cycles in a Keynesian Monetary Growth Model	299	(36)
11.1 Perspective of the Model	299	(6)
11.2 Formulation of the Model	305	(6)
11.3 Local Analysis	311	(5)
11.4 Simulation Results for the Original Model	316	(5)
11.5 A Modification of Adaptive Expectations	321	(5)
11.6 Simulation Results with Flexible Adaptive Expectations	326	(6)
11.7 Conclusion	332	(3)
V Finance, Long-Term Expectations, and Macro Fluctuations	335	(66)
12 Finance, Expectations Dynamics, and Macro Fluctuations	339	(34)
12.1 Introduction	339	(2)
12.2 Investment and Long-Term Expectations	341	(7)
12.3 The IS-LM Configuration	348	(3)
12.4 Analysis of Temporary Equilibria	351	(6)
12.5 Long-Run Dynamics	357	(6)
12.6 Computer Simulations	363	(5)
12.7 Conclusion	368	(1)
12.8 Mathematical Appendix	369	(4)
Trends and Cycles in the Capital Structure	373	(24)
13.1 Introduction	373	(3)
13.2 A Simple Dynamic Approach	376	(2)
13.3 The Dynamics of the Capital Structure: Constant Trend	378	(8)
13.4 The Dynamics of the Capital Structure: Trend Variations	386	(3)
13.5 Conclusion	389	(3)
13.6 Appendix	392	(5)
14 Conclusions	397	(4)
Notes	401	(26)
References	427	(20)
Index	447