chapter  5
Wicksellian inflation pressure in Keynesian models of monetary growth
Pages 40

Since our general Keynes-Wicksell prototype model synthesizes Goodwin’s classical growth cycle and Rose’s “Keynesian employment cycle” (based on sluggish wages and prices and smooth factor substitution), it must inherit the dynamic features of these real models to some extent. This result will in fact be shown in the following sections on the basis of a fixed proportions technology. Smooth factor substitution can be easily added to our model (see Chiarella and Flaschel 2000a, ch. 5), but we will not investigate here its (often obvious) implications.5 We stress that such an extension does not introduce a new theory of real wages into the model since the marginal productivity postulate does not represent a theory of real wages in this context, as it is often incorrectly believed. Real wage changes are instead determined by demand pressures on the market for labor and for goods, and they determine employment in a classical fashion if smooth factor substitution is allowed for.