An integrative approach to 2D-macromodels of growth, price and inventory dynamics

This paper investigates two variants of a Keynesian model of monetary growth with sluggish price and quantity adjustments. The first model integrates the real growth dynamics of Roseʹs employment cycle, an inflationary dynamics of the Cagan type and Metzlerʹs inventory dynamics. This model is based on intrinsic nonlinearities solely and it implies for the private sector six laws of motion, two for each of the subdynamics stated above. It is shown that the integrated model does not at all preserve the insights obtained from the three prototype subdynamics. Since this model can give rise to global instabilities even for moderate adjustment speeds of prices and quantities, a variant of this model is then introduced which exhibits one fundamental ‘nonintrinsic’ nonlinearity in its wage adjustment mechanism. This nonlinearity makes the considered 6D-dynamics at the same time extremely ‘viable’ and complex, in particular for a high adjustment speed of nominal wages.