Chapter 1: After the GT: Synthesizing Harrod’s Knife-Edge Growth and Kaldor’s Model of the Trade Cycle
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The model in Chapter 1 goes back to the roots of business cycle theory. Fulfilling modern standards, it combines a widely known instability mechanism with Harrod's and Kaldor's old, but largely forgotten idea that firms tend to reduce investment if they have already built up high capacities. The model is estimated by the so-called method of simulated moments, which also allows a highly satisfactory assessment of its goodness-of-fit. 14 fairly ambitious summary statistics allow a detailed diagnosis of the merits and demerits of this synthesis. It can thus constitute the ore of more elaborated attempts for business cycle modelling.

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