Endogenous Growth, Price Stability and Market Disequilibria

Abstract

Resorting to an endogenous growth framework, the paper studies the implications of taking market clearing as a long-term possibility rather than an every period implicit assumption, as in conventional growth analysis. The underlying main assumption respects to an adjustment mechanism in which: (1) transitional dynamics are characterized by the persistence of an accumulated market imbalance, and (2) monetary authorities are able to guarantee price stability. The implications of this modeling structure are the following: (1) a market-clearing equilibrium may co-exist with other equilibrium points, (2) several types of stability outcomes are obtainable, and (3) monetary policy becomes relevant for growth.