ABSTRACT
The present chapter is related to current work on modem macroeconomic modeling in a, broadly speaking, Keynesian (but not New-Keynesian) tradition. It particularly draws on the disequilibrium approach advanced in Chiarella et al. (2005), which refers to Keynes, Metzler, Goodwin and Taylor as its patron saints. 'Goodwin' indicates that income distribution plays a crucial role in the dynamics. In the form of the wage share, it is determined by the interplay of a wage as well as a price Phillips curve, and in tum impacts positively on aggregate demand via workers' consumption and negatively via profit-oriented investment. The Metzlerian part is a consequence of goods market disequilibrium, which is absorbed by inventories, while the evolution of the latter feeds back on planned inventory investment and thus aggregate supply. 'Taylor' takes account of monetary policy and follows the general consensus reached over the last decade that the central bank adopts an interest rate rule, most often specified as a variant of the Taylor rule responding to inflation and the output gap. Though modeled in a parsimonious way, when combined with sales and inflation expectations the dynamic system obtained in the end is six-dimensional. This means limited prospects for an analytical treatment, so that the model has to be studied by means of numerical simulations, an endeavor for which numerical values have to be assigned to the parameters. Chiarella et al. (2005, Ch. 5 and 6) use calibration methods for the parameter search, which amounts to an extensive investigation that requires judgement and dealing with a great variety of details.2
