Distribution shocks in a Kaleckian model with hysteresis and monetary policy |
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Institution: | 1. University of St.Gallen, Department of Economics, SIAW-HSG, Bodanstrasse 8, St.Gallen CH-9000, Switzerland;2. Swiss National Bank, Börsenstrasse 15, Zürich CH-8022, Switzerland |
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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. |
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Keywords: | Hysteresis Kaleckian model Secular stagnation Taylor-rule D33 E11 E12 E58 |
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