6 - The emergence of complex dynamics in a “naturally” nonlinear integrated Keynesian model of monetary growth

Summary

We present a fairly general Keynesian disequilibrium model of monetary growth that provides an integration of prototypical models of real growth, inflationary dynamics, and inventory adjustment into a consistent whole.

It makes use of a worker–capitalist example as in Kaldor's growth and distribution theory, an asset market structure as in Sargent's (1987, part I) Keynesian model of monetary growth, a description of the sector of firms that makes use of Malinvaud's (1980) investment theory and of the analysis of Franke and Lux (1993) and Franke (1992) of the Metzlerian process of inventory adjustment, a government sector as in Sargent (1987), a wage–price sector inspired by Rose's (1990) formulation of this sector, and an expectations mechanism with forward-and backward-looking components as in Groth (1988).

The behavior of firms takes into account the fact that firms seldom operate at their desired capacity and with their desired inventories, but deviate in general from these two norms because of unexpected changes in aggregate goods demand.

Our model is complete in the sense that the range of sectors utilized in conventional macrodynamic modeling is integrated here explicitly into a consistent whole, in particular with regard to financing conditions and budget restrictions of households, firms, and the government. There is no model in the traditional Keynesian literature of this generality, although all of its component parts can be considered as known from various sources.

Moreover, Keynesian monetary growth theory is generally not even mentioned in surveys on the literature on monetary growth, as for example in the recent article “Money, inflation and growth” by Orphanides and Solow (1990) in the Handbook of Monetary Economics.