Tackling the instability of growth: a Kaleckian-Harrodian model with an autonomous expenditure component

allain, olivier;

This article presents a basic Kaleckian model, enriched by the simultaneous
addition of an Harrodian investment function and an autonomous expenditure
component that grows at an exogenous rate. The model shows that the usual
short-run properties (wage-led growth) are only transient, since the long-run
growth rate converges towards that of autonomous expenditures. However, the
impact on the level of variables (output, capital stock, labour, etc.) is permanent.
The model also provides a conditional solution to the �second� Harrod
knife-edge problem: the destabilising behaviour of firms (as they adjust their
investment decisions to the discrepancy between the actual and the normal rates
of capacity utilisation) is now required to achieve the normal rate of capacity
utilisation.