A KEYNES-GOODWIN MODEL OF THE BUSINESS-CYCLE

The paper puts forward a dynamic IS-LM model in four state variables representing real balances, inflation, income distribution, and a so-called state of confidence. Local (in)stability is characterized by (high) low interest elasticities of money demand. Also a Hopf bifurcation can be shown to exist. Freezing inflation and distribution makes a mathematical analysis of the main stability mechanisms in the outer regions possible. The global dynamics of the full system is studied by means of numerical simulations. It gives rise to unique and stable limit cycles. Lastly, a sensitivity analysis inquires into the impact of parameter changes on the main cycle features.