Looking for the rationale of the instability principle in Harrod’s essay in dynamic theory: who is adjusting what?

Rodolphe dos Santos Ferreira*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Instability of the warranted growth path, an important property for business cycle theory, is central to Harrod’s Essay. It is persuasively presented as the consequence of moving from statics (where stability is viewed as the normal case) to dynamics. How exactly? The paper suggests two reasons. The first lies in attributing to demanders (firms as investors) rather than to suppliers (firms as producers) the main response to market imbalances. The second results from the insidious introduction of an extrapolative component of expectations in Harrod’s dynamic approach, replacing levels by trends and confining them to a single point in time.
Original languageEnglish
Pages (from-to)549-563
Number of pages15
JournalEuropean Journal of the History of Economic Thought
Volume27
Issue number4
DOIs
Publication statusPublished - 3 Jul 2020
Externally publishedYes

Keywords

  • B22
  • E32
  • Error correction
  • Extrapolative expectations
  • Harrodian instability
  • Macro-dynamic analysis

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