Credit-Driven Investment, Labor Markets and Macroeconomic Dynamics
WORKING PAPER
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This paper sets up a baseline, advanced and complete model representing goods market dynamics, heterogeneous labor markets, wage-price adjustment processes, and counter-cyclical government policies.
The framework is constructed in such way that simplied, lower dimensional versions of the model can be obtained by setting parameters describing specific feedback effects from one sector to another equal to zero. Starting from such low dimensional sub-dynamics, we show the local stability of the full 7D model through a "cascade of stable matrices" approach if the feedback chains are sufficiently tranquil in their trans-mission mechanisms.