Output, Financial Markets and Growth

University of Technology, School of Finance and Economics Working Paper No. 108

24 Pages Posted: 31 Jan 2006

See all articles by Carl Chiarella

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics

Reiner Franke

Vienna University of Technology

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: September 2000

Abstract

In this paper we reconsider a macrodynamic model of Blanchard, which integrates output and stock market dynamics in a fundamental way. We add budget equations (and their implications) to all sectors of the economy, and also capital accumulation and growth (but not yet proper wage-price dynamics) and obtain a model of the real-financial interaction with quite different steady state characteristics as compared to the Blanchard approach. We furthermore allow for somewhat sluggish adjustment of share prices and capital gain expectations in place of perfect substitutes and perfect foresight. This brings our approach closer to completion and also makes it much more involved. Instead of the originally only 2D dynamics we now obtain a 4D dynamical system with two real and two financial variables and specific stability properties. However, by setting certain secondary expressions equal to their trend values, we can regain the mathematical form of the original 2D dynamics of Blanchard type. This form is now based on variables that allow for stationarity, when estimated, that therefore permit to estimate the model to get information about the magnitude of its adjustment speeds, the size of which is crucial for the stability of instability of this dynamical system.

Suggested Citation

Chiarella, Carl and Flaschel, Peter and Franke, Reiner and Semmler, Willi, Output, Financial Markets and Growth (September 2000). University of Technology, School of Finance and Economics Working Paper No. 108. Available at SSRN: https://ssrn.com/abstract=880170 or http://dx.doi.org/10.2139/ssrn.880170

Carl Chiarella (Contact Author)

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
+61 2 9514 7719 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://www.business.uts.edu.au/finance/

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Reiner Franke

Vienna University of Technology ( email )

Wien 1040
Austria

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
123
Abstract Views
1,353
rank
240,508
PlumX Metrics