Endogenous business cycles and economic policy

Authors

Peter Skott, University of Massachusetts AmherstFollow

Working Paper Number

2023-3

Publication Date

2023

Abstract

This paper examines the dynamics of Keynesian models that incorporate feedback effects from the labor market to income distribution, in- vestment, aggregate demand and output. A baseline version of the model can generate endogenous growth cycles, but cumulative divergence and economic collapse also become possible for plausible parameter values. Extensions of the model that include monetary and Öscal policy show greater robustness: the local instability of the stationary point leads to limit cycles (rather than complete collapse), even when large, destabilizing changes are made to parameters describing the private sector. The robustness of the general approach is reinforced by the endogeneity of the Öscal and monetary policy rules.

DOI

https://doi.org/10.7275/rzex-nz35

License

UMass Amherst Open Access Policy

Recommended Citation

Skott, Peter, "Endogenous business cycles and economic policy" (2023). Economics Department Working Paper Series. 345.
https://doi.org/10.7275/rzex-nz35