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Jung Hoon Kim (2006) A two-sector model with target-return pricing in a stock-flow consistent framework, Research On Banking International and National Systems Or Networks, University of Ottawa, Working paper, n. 1


Abstract: The aim of the present paper is to build a generalized Kaleckian two-sector model with a
consumption sector and an investment sector in a closed economy, on the one hand, and to
explore long-run relationships with short-period and medium-period dynamics towards
long-run positions, on the other hand. The model suggested here incorporates conflicting
claims of labour and firms over income distribution and endogenous labour-saving
technical progress. Adopting a stock-flow consistent framework that has been developed
recently by Godley and Lavoie, our experiments yield interesting results as follows. First,
the ‘paradox of thrift’ and the ‘paradox of costs’ would still hold, but the impact would be
smaller than that in a model without conflicting-claims inflation and endogenous laboursaving
technical progress. Second, the initial status of income distribution and monetary
policy could play a crucial role in determining the magnitude of the impact, and those
might make paradoxes disappear. Finally, changes in autonomous labour-saving innovation
might explain the phenomenon of the “new economy” of the second half of 1990s within an
alternative framework. Our model, therefore, reinforces a post-Keynesian growth theory
where aggregate demand is the most crucial determinant of long-run positions as well as
short-run positions, and shows that economic growth is demand-led, rather than supply-led,
characterized by the ‘path-dependency’.

November 13, 2010 | Comments Closed