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About this book

This monograph is devoted to the analysis of the dynamics of business cycles and stabilization policies. The analysis is conducted in models of the AS-AD type, focusing on involuntary unemployment and capital accumulation. Major conclusions are the following. (1) Sectoral imbalances, once emphasized by such business-cycle theorists as K. Marx, A. Spiethoff, and F.A. Hayek, are rectified in finite time by competitive investment allocation, leaving aggregate variables as the main variables of business cycle dynamics. (2) The chronology of events during a cycle is established, which resolves the so-called real wage puzzle. (3) Owing to the crowding-out effect on investment, fiscal stabilization policies can destabilize the business cycle dynamics if implemented too intensively. (4) If coordinated properly, monetary stabilization policies can remove the destabilizing tendency of fiscal stabilization policies.

Table of Contents


Chapter 1. An Aggregative Model of Unemployment, Cycles, and Growth

The purpose of this chapter is to analyze business cycles in a growing economy based upon two principal postulates, namely that (1) fluctuations of involuntary unemployment are an essential constituent of business cycles and (2) accumulation of capital is an integral part of business cycles. Using a macro model which is a close descendant of the monetary growth theory, this chapter establishes the arriving order of the turning points of major economic variables during a cycle, which also serves to resolve the so-called real wage puzzle.
Hajime Hori

Chapter 2. A Hicksian Two-Sector Model of Cycles and Growth

This chapter analyzes cycles and growth using a dynamic version of the Hicksian two-sector model. Two types of friction, nominal wage stickiness and non-shiftability of capital, are present. It is found that sectoral imbalances caused by the non-shiftablilty of capital are corrected in finite time through investment allocation and that the possibility of cycles depends on the speed of nominal wage adjustment. The arriving order of the turning points of some important economic variables is established.
Hajime Hori

Chapter 3. Stabilization Policies and Business Cycle Dynamics

Stabilization policies interfere with the dynamic workings of the economic system to which they are applied. As a result, they necessarily generate some dynamic repercussions in the process. This chapter analyzes the dynamic interplay between stabilization policies, capital accumulation, and business cycles. Capital accumulation is an integral part of business cycles. It is not just a component of demand but an addition to the economy’s productive capacity, and, as such, has a lasting influence on employment. As a result, by affecting capital accumulation, stabilization policies can modify the entire shape of business cycles. Assuming a feedback-type policy function, it is shown that, due to the crowding-out effect of fiscal expenditures, too intensive implementation of fiscal stabilization policies leads to instability of the dynamics, but that suitably coordinated monetary policy may be capable of recovering stability.
Hajime Hori


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