In “On Keynesian Economics and the Economics of Keynes” (1968) Leijonhufvud described his cybernetic vision for macroeconomic microfoundations and the dynamics that move the economy from one equilibrium to another. Here I implement that vision in agent-based model. I focus on the difference between price-led adjustments (“Marshallian” in the original text) and quantity-led adjustments (“Keynesian”). In a partial equilibrium model the two dynamics lead to the same equilibrium at the same speed through the same path. In a general equilibrium model the Keynesian dynamics overshoots and under-shoots with consequent over-employment and unemployment. The agents within the model act by trial and error using very limited knowledge which I simulate here through the use of PI controllers. When a demand shock is treated with increased labor flexibility or positive productivity shock the result is a deeper recession and longer disequilibrium.
CITATION STYLE
Carrella, E. (2017). A cybernetic model of macroeconomic disequilibrium. In Advances in Intelligent Systems and Computing (Vol. 528, pp. 37–52). Springer Verlag. https://doi.org/10.1007/978-3-319-47253-9_4
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