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A HARRODIAN KNIFE‐EDGE THEOREM FOR THE WAGE‐PRICE SECTOR
Author(s) -
Flaschel Peter
Publication year - 1994
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1994.tb00023.x
Subject(s) - economics , inflation (cosmology) , wage , analogy , stability (learning theory) , hopf bifurcation , mechanism (biology) , econometrics , mathematical economics , bifurcation , labour economics , physics , computer science , nonlinear system , linguistics , philosophy , machine learning , quantum mechanics , theoretical physics
This paper investigates a positive self‐reference of the rate of inflation onto itself as can exist in a standard medium run IS‐LM model with an appropriately formulated dynamic wage‐price sector. This self‐reference represents a three‐dimensional analogy to the one‐dimensional positive feedback mechanism of the Harrodian analysis of unstable steady growth. It is shown in particular that this self‐reference can overthrow the local asymptotic stability of such an IS‐LM model in a cyclical fashion by means of a so‐called Hopf bifurcation if the adjustment speed of the price level becomes sufficiently large.