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A two‐sector Keynesian model of business cycles
Author(s) -
Murakami Hiroki
Publication year - 2018
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/meca.12195
Subject(s) - economics , business cycle , new keynesian economics , consumption (sociology) , investment (military) , investment goods , business sector , context (archaeology) , sector model , volatility (finance) , dual economy , microeconomics , macroeconomics , keynesian economics , economy , econometrics , market economy , monetary policy , agriculture , paleontology , social science , ecology , sociology , politics , biology , political science , law
In this paper, we examine the effect of sectoral interactions on business cycles in a simple Keynesian model. As a first step for introducing viewpoints of multiple sectors in the context of business cycles, we consider a dual economy in which there are only two kinds of goods: the consumption good and the investment good. By examining a two‐sector Keynesian model, we intend to take a look at some phenomena induced by interactions between the consumption good sector and the investment good sector, which cannot be observed in one‐sector models. We then find that the stability of equilibrium and the possibility of emergence of a periodic orbit depend on whether the Keynesian stability condition holds or not and that along periodic orbits (business cycles), the consumption good sector lags behind the investment good sector and that the volatility (measured by the ratio of the amplitude of cycles to the equilibrium value) of the investment sector is larger than that of the consumption good sector. Also, we supplement the analysis by performing numerical simulations.