When is the long run?—Historical time and adjustment periods in demand‐led growth models

Abstract

In recent years, Post-Keynesian analysis has been characterized by a renewed interest in long-run theories of growth and distribution. While many authors have focused on the convergence of demand-led growth models to a fully adjusted equilibrium, relatively little attention has been given to the time required to reach this long-run position. In order to fill the gap, this paper seeks to answer the question of when is the long run in demand-led growth models. By making use of numerical integration, it analyses the time of adjustment from one steady-state to the other in two wellknown demand-led growth models: the Sraffian Supermultiplier and the fully adjusted version of the neo-Kaleckian model. The results show that the adjustment period is generally beyond an economically meaningful time span, suggesting that researchers and policy makers ought to pay more attention to the models' predictions during the traverse rather than focusing on steady-state positions.

Kalecki meets Schumpeter: The decline of competition in a demand‐led dynamic model

“…The initial value for the wage share is set at 0.75, slightly above the one used by Nah and Lavoie (2019). We also calibrated 𝐴𝐴 𝐴𝐴 ℎ to obtain an initial value for capacity utilization of 0.8, similar to Gallo (2022aGallo ( , 2022b, and did the same with 𝐴𝐴 𝐴𝐴 𝑖𝑖 and 𝐴𝐴 𝐴𝐴 𝑗𝑗 to reach an initial productivity growth between 0.2 and 0.3, which is standard.…”

Historical Time and the Current State of Post-Keynesian Growth Theory

“…By numerically solving the systems of differential equations that regulate out-of-equilibrium dynamics in the amended neo-Kaleckian model of Allain (2015) and Lavoie (2016) sketched above and in the supermultiplier model of Freitas and Serrano (2015), Gallo (2022) shows that both models share a very slow pace of adjustment. In other words, the convergence from one steady-state to another may be long enough to be economically meaningless.…”

“…This view is consistent with Robinson (1962, p. 17), who notes that "it is absurd, though unfortunately common, to talk as though 'in the long run' we shall reach a date at which the equilibrium corresponding to today's conditions will have been realized". As suggested by Gallo (2022), supermultiplier models of both Sraffian and Kaleckian fashion should hence refocus attention on the traverse path, thus thinking as if the models are not normally in their steady-state equilibria. This view is consistent with Cornwall (1991, p. 107), who stresses that economists ought to "concern themselves with the relative speed with which the assumed exogenous forces change in the real world compared to the speed with which the economy converges on an equilibrium".…”