Strategic Competition, Dynamics, and the Role of the State

Strategic Competition, Dynamics, and the Role of the State

A New Perspective

New Directions in Modern Economics series

Jamee K. Moudud

Jamee Moudud provides a new microfoundational explanation for the Harrodian long-run or warranted growth rate. The author, emphasizing the role of Keynesian uncertainty, shows that the growth model is anchored in a new interpretation of the Oxford Economists’ Research Group’s microeconomic analysis and a variant of the stock-flow consistent framework. In a distinctly Kaldorian vein, Jamee Moudud discusses the relationship between capital budgeting, public investment, and taxation policy as it relates to the warranted growth rate and its impact on long-term involuntary unemployment.

Chapter 4: A Model of Disequilibrium Dynamics

Jamee K. Moudud

Subjects: economics and finance, institutional economics

Extract

INTRODUCTION In this chapter a model of growth and cycles, which is anchored in a stockflow consistent (SFC) framework, will be derived. Along the lines pioneered by Richard Stone and Wynne Godley, the distinguishing feature of the SFC framework is that all flows from each sector of the economy (households, businesses and the government) are explicitly related to each other in a social accounting matrix (SAM) as well as the corresponding balance sheets. The SAM is a flow matrix and is linked to each sector’s stocks of assets and liabilities. While the SFC framework has in recent years gained some currency in Post Keynesian circles, the version deployed in this chapter makes a distinction between ex ante and ex post, while that used by Post Keynesian authors is cast entirely in ex post terms. One important implication of an ex post SAM is that the money supply and money demand are always equal to each other, whereas they are not necessarily so in the ex ante case. Furthermore, the ex ante SAM allows for disequilibria between ex ante savings and investment to be modeled. Section 2 discusses the key features of an ex ante SAM and shows how it forms the basis of the cyclical growth model. In this section I will also examine the Post Keynesian view that money supply and money demand have to be equal in a correctly specified SFC model. Finally, section 2 will investigate the effect of a fall in the social savings rate, caused...

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