Macroeconomics of Growth Cycles and Financial Instability

Macroeconomics of Growth Cycles and Financial Instability

New Directions in Modern Economics series

Piero Ferri

In light of the recent economic crisis and in keeping with Hyman Minsky’s analysis of financial instability, this book considers the important interaction between cycles and growth, via the interplay between demand, supply and real-world financial issues.

Chapter 6: The Role of Imperfect Competition

Piero Ferri

Subjects: economics and finance, post-keynesian economics


A DUAL GOAL The role of imperfect competition in economic theory has undergone considerable change since its inception in the 1930s, when Chamberlin (1933) and Joan Robinson (1933) independently formalized the concept. In particular, its field of application has transcended microeconomics to occupy an important place in macroeconomics (see Blanchard and Kiyotachi, 1987). This market structure has to face two main challenges in this new territory. First, it has to show its superiority over perfect competition. Second, it has to demonstrate its contribution to the foundations of macroeconomics. In fact, we have already mentioned how in consumption theory, Akerlof (2007) has insisted on the role of social norms in order to capture the process of dynamic interdependence between consumers. One wonders whether there are ‘norms’ in the case of imperfect competition in the presence of uncertainty, leading to a foundation of macroeconomic supply. The objective of the present chapter is to look at these themes in greater depth. This implies that the following are necessary: to identify the presence of a degree of heterogeneity that cannot be eliminated by the symmetry hypothesis; b. to consider the inevitable simplifications that a process of interdependence carried out within the perspectives of imperfect knowledge economics (IKE), as defined by Frydman and Goldberg (2007), imposes on the analysis. The IKE structure of the model suggests that the interdependence processes that characterize heterogeneous agents be analyzed with a methodology that is appropriate for a macroeconomic analysis. c. The theme of the coordination of expectations by...

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