Applied Disequilibrium Growth Theory

  • Carl Chiarella
  • Peter Flaschel
  • Gangolf Groh
  • Willi Semmler


In this chapter we extend the hierarchical structured continuous-time models of Keynesian monetary growth, introduced with increasing dimension in Chiarella and Flaschel (1999a,d) for the closed and the open economy, into the direction of the macroeconometric Murphy model for the Australian economy, i.e., toward an empirically motivated modeling of a small open economy with a Keynesian short- and medium-run, but with also classical and monetarist features and adjustment processes in the medium- as well as in the long-run behavior of the economy.1 The Murphy model, see Powell and Murphy (1997) for its detailed description, and our theoretical reformulation of it for the case of fixed proportions in production in Chiarella and Flaschel (1999e,f), therefore blends demand and supply side approaches into an integrated and coherent whole with a — from a theoretical point of view — very detailed description of the structure of a small open economy, like Australia.


Gross Domestic Product Money Supply Capacity Utilization Money Demand Monetary Authority 
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  1. 1.
    This chapter is based on the material presented in Chiarella, Flaschel, Groh, Köper and Semmler (1999a) .Google Scholar
  2. 2.
    See however Barnett and He (1998) for an interesting approach to the analysis of macroeconometric models from the theoretical perspective.Google Scholar
  3. 3.
    See also the appendix for the employed notation.Google Scholar
  4. 7.
    And the windfall profits that may occur when there are unplanned inventory changes.Google Scholar
  5. 8.
    Such a distributional rule is implicitly present in most presentations of the money market, which generally focus on household behavior as a whole.Google Scholar
  6. 9.
    Our model will give rise to such an item if Ḃl 2 turns out to be negative in which case domestic wealth allocation of asset owners is financed to some extent by reductions in their foreign bond holdings or by foreign debt if there are no such bond holdings. Our model therefore in principle allows for foreign indebtness of the private sector (in which case the capital account will exhibit only negative entries).Google Scholar
  7. 10.
    Their use of average rates of return in the calculation of actual returns, however, is somewhat problematic from the purely theoretical point of view and its use of consistent budget equations.Google Scholar
  8. 11.
    See Chiarella, Flaschel, Groh, Köper and Semmler (1999b) for a detailed derivation of these optimality considerations of firms in the case of CES / CET production technologies.Google Scholar
  9. 12.
    They however assume that the growth rate of the money supply is strictly exogenous.Google Scholar
  10. 13.
    See Flaschel and Köper (1999) for the introduction of a Tobin type portfolio approach into models of KMG type, that integrates the behavior of financial markets as considered in Franke and Semmler (1999) with the dynamics of the real part of the economy. The above kind of asset price dynamics is investigated in a simple Blanchard (1981) type framework in Chiarella, Semmler and Mittnik (1998) from the theoretical, the numerical and the empirical perspective.Google Scholar
  11. 14.
    Which are normally interpreted as net ‘factor’ exports NFX n . Google Scholar
  12. 15.
    See also Bhaduri, Laski and Riese (1998) in this regard, who however do not go far enough, since they stop their dynamic analysis with the dynamic multiplier in place of a proper quantity adjustment that also takes account of induced inventory changes. Note also that their price adjustment rule, as in Powell and Murphy (1997), makes use of a delayed adjustment towards competitive (or imperfectly competitive) marginal cost pricing, which according to this chapter can be reinterpreted in terms of quantities and capacity utilization rates.Google Scholar
  13. 16.
    Note here also that the employment policy of firms may deviate from marginal productivity rules, even if the choice of over- or under-time work is dependent on them. Empirically it is highly implausible that labor is hired up to the point at which marginal productivity equals the real wage as far a outside labor recruitment is concerned.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2000

Authors and Affiliations

  • Carl Chiarella
    • 1
  • Peter Flaschel
    • 2
  • Gangolf Groh
    • 3
  • Willi Semmler
    • 2
    • 4
  1. 1.Sydney School of Finance and EconomicsUniversity of TechnologySydneyAustralia
  2. 2.Faculty of EconomicsUniversity of BielefeldBielefeldGermany
  3. 3.Faculty of EconomicsUniversity of MagdeburgMagdeburgGermany
  4. 4.Department of EconomicsNew School UniversityNew YorkUSA

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