The great moderation and “falling off a cliff” Neo-Kaldorian….pptx

8/5/2011 rev. J. Devine/Neo-Kaldorian Dynamics “ The economy fell off the cliff. ”– e Soros (11/24/2008). 1 8/5/2011 rev. J. Devine/Neo-Kaldorian Dynamics 2 The Great Moderation and "Falling Off a Cliff": neo-Kaldorian dynamics. James G. Devine Loyola Marymount University (LA, CA) ******@ August 5, 2011 (Published as The Great Moderation and “ Falling Off a Cliff ”: Neo-Kaldorian Dynamics in Journal of Economic Behavior & Organization , 78(3), May 2011: 366-373. A rough draft is available at: -2010- with diagrams at - . The current version has been edited a lot without changing any conclusions.) 2 8/5/2011 rev. J. Devine/Neo-Kaldorian Dynamics 3 Outline. I. Introduction. II. The Short-Run Model. A. the Expenditure curve ( EE ). B. the Actual Demand/Debt ratio curve ( AA ). C. Short-run equilibria. III. Medium-Run disruption of SR Equilibrium. A. The “ typical ” cycle. B. A Fall off the cliff. C. The Great Moderation. IV. The aftermath: Recovery or Stagnation? V. Conclusion: Policy ’ s role. 3 8/5/2011 rev. J. Devine/Neo-Kaldorian Dynamics 4 (I) Purpose. to help to understand: Why the . economy “ fell off a cliff ”– or threatened to do so – during the years 2008-2009. ? the world economy, the housing market, and most of finance will be ignored here. ? it’ s possible that 2009 ’ s stimulus package saved the economy from a Fall – but who knows? o We may not have been suffering from a Fall. 4 8/5/2011 rev. J. Devine/Neo-Kaldorian Dynamics 5 (I) Theoretical Background. 1. Kaldor ’ s Keynesian (pre-catastrophe theory) model of the business cycle (1940 ): ? Non-linearity implies three equilibria (two of which are stable). ? Stable equilibria represent two general states of the macro- economy: high employment and stagnation. ? A “ Fall ” is a downward leap between these. 2. Dynamic theories of Minsky ( 198