The paper puts forward a deterministic macrodynamic model of the business cycle that allows for sluggish price and quantity adjustments in response to disequilibrium on product and labour markets. Based on regular oscillations of two exogenous variables, 14 reaction coefficients are determined in such a way that the cyclical patterns of the endogenous variables are broadly compatible with stylized facts. This calibration procedure is organized in a hierarchical structure, so that subsets of the parameters can be established step by step. In a second stage, the previous findings are checked with empirical fluctuations of the exogenous variables. Thirdly, the latter are endogenized and the corresponding additional parameters are chosen. The resulting dynamic system, which in its reduced form is of dimension six, generates persistent cyclical behaviour with similar time series properties of the variables as obtained before.

1 Introduction

The paper takes up a deterministic macrodynamic modelling framework from the literature as it has been recently expounded by Chiarella and Flaschel (2000, Chapter 6), Chiarella et al. (2000, Chapters 3 and 4), or Flaschel et al. (2001).

Allowing for disequilibrium on the product and labour markets, which gives rise to sluggish price and quantity adjustments, the approach incorporates elements of economic theory that are, in particular, connected with the names of Keynes, Metzler and Goodwin. Briefly, Keynesian elements are...