ABSTRACT

The system of linear differential equations is reached directly by assuming linear macroeconomic relationships from the outset. In either event, the system of linear differential equations governing the dynamics of the macroeconomic model is usually a local approximation to a far more complex system of non-linear differential equations. It has become traditional in macroeconomic theory to analyse a dynamic macroeconomic model by linearising around an equilibrium point the system of nonlinear differential equations governing the dynamics of the macroeconomic model in question. Despite the long tradition the theory of nonlinear dynamic macroeconomics remains in the wings, with the centrestage of dynamic macroeconomic analysis being occupied by models of the linearization type. The idea that time lags and nonlinearities in dynamic macroeconomic models can lead to persistent economic fluctuations is certainly not new; indeed these were precisely the factors giving rise to such fluctuations in the M. Kalecki-N. Kaldor-J. R. Hicks-R. M. Goodwin line of research.