Distribution shocks in a Kaleckian model with hysteresis and monetary policy

Hiroshi Nishi; Engelbert Stockhammer

doi:10.1016/j.econmod.2019.11.030

Distribution shocks in a Kaleckian model with hysteresis and monetary policy

Hiroshi Nishi, Engelbert Stockhammer

Hannan University

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Abstract

This study presents a dynamic Kaleckian model with different demand and distribution regimes, a monetary policy rule and hysteresis in the natural output level. We analyse the local stability of the steady state and the transitional dynamics in different combinations of demand and distribution regimes. Our model indicates that the initial condition in an economy matters for the steady state selection from multiple ones. Using impulse response function analysis, we show that a temporary shock to the income distribution can cause permanent effects on the dynamics of endogenous variables. Moreover, the degree of hysteresis influences the magnitude of impact on output levels. Monetary policy cannot stabilise output levels in the face of temporary shocks. Finally, we find that in a wage-led demand regime, a rise in inequality of functional income may lead to secular stagnation.

Original language	English
Pages (from-to)	465-479
Number of pages	15
Journal	ECONOMIC MODELLING
Volume	90
Early online date	10 Jun 2020
DOIs	https://doi.org/10.1016/j.econmod.2019.11.030
Publication status	Published - Aug 2020

Keywords

Hysteresis
Kaleckian model
Secular stagnation
Taylor-rule

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10.1016/j.econmod.2019.11.030

Distribution shocks in a Kaleckian_NISHI_Publishedonline10June2020_GREEN AAMAccepted author manuscript, 855 KBLicence: CC BY-NC-ND

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AB - This study presents a dynamic Kaleckian model with different demand and distribution regimes, a monetary policy rule and hysteresis in the natural output level. We analyse the local stability of the steady state and the transitional dynamics in different combinations of demand and distribution regimes. Our model indicates that the initial condition in an economy matters for the steady state selection from multiple ones. Using impulse response function analysis, we show that a temporary shock to the income distribution can cause permanent effects on the dynamics of endogenous variables. Moreover, the degree of hysteresis influences the magnitude of impact on output levels. Monetary policy cannot stabilise output levels in the face of temporary shocks. Finally, we find that in a wage-led demand regime, a rise in inequality of functional income may lead to secular stagnation.

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KW - Taylor-rule

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Distribution shocks in a Kaleckian model with hysteresis and monetary policy

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Keywords

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