2008/21 LEM Working Paper Series

Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles

Giovanni Dosi, Giorgio Fagiolo, Andrea Roventini
Endogenous Growth; Business Cycles; Growth Policies; Business Cycle Policies; Evolutionary Economics; Agent-Based Computational Economics; Post- Walrasian Economics; Empirical Validation; Monte-Carlo Simulations.

  JEL Classifications
E32, E6, O3, O4

This paper studies an agent-based model that bridges Keynesian theories of demand generation and Schumpeterian theories of technology-fueled economic growth. We employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply, demand and the "fundamentals" of the economy. We find that the complementarities between factors influencing aggregate demand and drivers of technological change affect both "short-run" fluctuations and long-term growth patterns. From a normative point of view, simulations show a corresponding complementarity between Keynesian and Schumpeterian policies in sustaining long-run growth paths characterized by mild fluctuations and acceptable unemployment levels. The matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct "regimes" of growth (or absence thereof) characterized by different short-run fluctuations and unemployment levels.

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