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We extend Goodwin's distributive cycle by effective demand forces and endogenous process innovations, driven by the evolution of the employment rate of workers in the sphere of production and its consequences for the income distribution between capital and labour. We show that the extended dynamics can create persistent fluctuations in employment, income distribution and productivity growth if their balanced growth path is surrounded by an unstable multiplier–accelerator process, a basic variant of its well-known Goodwin formulation. Our integration of global stability through a Marxian reserve army mechanism, with locally destabilising Keynesian demand and Schumpeterian process innovations, provides a basic model of what Goodwin describes as the MKS system approach to the understanding of the evolution of capitalism.

A baseline integration of commercial banks into the disequilibrium framework with behavioral traders of Charpe et al. (2011, 2012) is presented. At the core of the analysis is the impact the banking sector exerts on the interaction of real and financial markets. Potentially destabilizing feedback channels in the presence of imperfect macroeconomic portfolio adjustment and heterogeneous expectations are investigated. Given the possible financial market instability, various policy instruments have to be applied in order to guarantee viable dynamics in the highly interconnected macroeconomy. Among those are open market operations reacting to the state-of-confidence in the economy and Tobin-type capital gain taxes. The need for policy intervention is even more striking, as the banking sector is modeled in a rather stability enhancing way, fulfilling its fundamental tasks of term transformation of savings and credit granting without engaging in investment activities itself.

This book is in the tradition of non-market-clearing approaches to macrodynamic economics. It shows for the first time that macrodynamics can be developed and investigated in a systematic fashion, leading to coherent models of fluctuation growth. This differs considerably from the microfounded full equilibrium approaches which are currently fashionable

The paper builds on the Goodwin (1967) model which describes the distributive cycle of capitalist economies whereby mass unemployment is generated periodically through the conflict about income distribution between capital and labor. We add to this model a segmented labor market structure with fluid, latent, and stagnant components. The model exhibits a unique balanced growth path which depends on the speeds with which workers are pushed into or out of the labor market segments. We investigate the stability properties of this growth path with segmented labor markets and find that, though there is a stabilizing inflation barrier term in the wage Phillips curve, the interaction with the latent and stagnant portions of the labor market generates potentially (slowly) destabilizing forces if policy measures are absent that regulate these labor markets. We then introduce an activating labor market policy, where government in addition acts as employer of last resort thereby eliminating the stagnant portion of the labor market, whilst erecting benefit systems that partially sustain the incomes of workers that have to leave the floating/latent labor market of the private sector of the economy. We show that such policies guarantee the macrostability of the economy’s balanced growth path.

Originally published in 2000, this book is in the tradition of non-market-clearing approaches to macrodynamic approaches. It builds a series of integrated disequilibrium growth models of increasing complexity, which display the economic interaction between households, firms and government across labour, goods, money, bonds and equities markets. Chiarella and Flaschel demonstrate how macrodynamics can be developed in a hierarchical way from economically simple structures to more advanced ones. In addition it investigates complex macrodynamic feedback mechanisms.

This paper analyses labour productivity and the law of decreasing labour content (LDLC) originally formulated by Farjoun and Machover. While accepting the validity of that law, it shows that the conventional measures of labour productivity used in the literature may be rather misleading, because they are based on monetary aggregates. Theoretically and empirically sounder measures are provided by standard Marxian real labour values. The notion of labour content and the LDLC are therefore central to understanding capitalist economies. Some rigorous theoretical relations between different forms of profit-driven technical change and productivity are derived in a general input—output framework with fixed capital, and these provide foundations to the LDLC. These theoretical propositions are empirically illustrated using a new dataset of the German economy.

In the last months, the world's economies were confronted with the largest economic recession since the Great Depression. The occurrence of a worldwide financial market meltdown as a consequence originally stemming from of the crisis in the US subprime housing sector was only prevented by extraordinary monetary and fiscal policy measures implemented at the international level. Although the world economy seems now to be slowing recovering, it is worthwhile exploring the fragility and potentially destabilizing feedbacks of advanced macroeconomies in the context of Keynesian macro models. Fragilities and destabilizing feedback mechanisms are known to be potential features of all markets-the product markets, the labor market, and the financial markets. In this paper we focus in particular on the financial market. We use a Tobin-like macroeconomic portfolio approach, and the interaction of heterogeneous agents on the financial market to characterize the potential instability of the financial markets. Though the study of the latter has been undertaken in many partial models, we focus here on the interconnectedness of all three markets. Furthermore, we also study how labor market, fiscal and monetary policies can stabilize unstable macroeconomies. Besides other stabilizing policies we in particular propose a countercyclical monetary policy that sells assets in the boom and purchases assets in recessions. Modern stability analysis is brought to bear to demonstrate the stabilizing effects of those suggested policies.

Originally published in 2000, this book is in the tradition of non-market-clearing approaches to macrodynamic approaches. It builds a series of integrated disequilibrium growth models of increasing complexity, which display the economic interaction between households, firms and government across labour, goods, money, bonds and equities markets. Chiarella and Flaschel demonstrate how macrodynamics can be developed in a hierarchical way from economically simple structures to more advanced ones. In addition it investigates complex macrodynamic feedback mechanisms.

The paper investigates the emergence of complex market expectations (opinion dynamics) around nominal exchange rate adjustments using a macro-financial model of a small open economy featuring heterogeneous expectation formation (chartists and fundamentalists) and gradual adjustment processes in real and also to a certain degree in financial markets. The model shows among other things the mechanisms through which the first type of agents tends to destabilize the economy. Global stability can be ensured if opinions turn to fundamentalist behavior far off the steady state. This interaction of expectations and population dynamics is bounding the—due to chartist behavior—potentially explosive real-financial market interactions, but can enforce irregular behavior within these bounds. The size of output and exchange rate fluctuations can be dampened by adding suitable policy measures to the dynamics of the private sector.