Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

Keynes-Metzler-Goodwin Model Building: The Closed Economy
Author(s): T. Asada, Carl Chiarella & Peter Flaschel
Date of publication: January 2003
Working paper number: 124
In the framework of a recently established Keynesian type monetary macro model, the so-called KMG model, we study implications of kinked Phillips curves and alternative monetary policy rules. As alternative monetary policy rules we consider monetary growth targeting and interest rate targeting (the Taylor rule). Our monetary macro model exhibits: asset market clearing, disequilibrium in product and labor markets, sluggish price and quantity adjustments, two Phillips-Curves for wage and price dynamics, and a combination of medium-run adaptive and short-run forward looking expectations. Simulations of the model with our estimated parameters reveal global instability of its steady state. We show that monetary policy can stabilize the dynamics to some extent and that, in addition, an institutionally given kink in the money wage Phillips-Curve (downwardly rigid wages) represents a powerful mechanism for obtaining bounded, more or less irregular fluctuations in the place of purely explosive ones. The resulting fluctuations can be reduced in size by choosing the parameters of monetary policy within a certain corridor, the exact position of which may however be rather uncertain.
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Known citations:

Gomes, O., 2007, "Endogenous Growth in the Absence of Instantaneous Market Clearing", Working Paper.

Gomes, O., 2010, "Endogenous Growth, Price Stability And Market Disequilibria", Metroeconomica, 61(1), 3-34.

Vela Velupillai, K., 2006, "A Disequilibrium Macrodynamic Model of Fluctuations", Journal of Macroeconomics, 28(4), 752-767.