Prague Economic Papers 2013, 22(3):358-384 | DOI: 10.18267/j.pep.457

Complex Price Dynamics in the Modified Kaldorian Model

Jan Kodera1, Quang Van Tran1, Miloslav Vošvrda2
1 University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3 (kodera@vse.cz).
2 Institute of Information Theory and Automation, AS CR, Pod Vodárenskou věží 4, 182 08 Prague 8 (vosvrda@utia.cas.cz).

In this article we analyse a neoclassical model of inflation. Our aim is to reconstruct the neoclassical theory of inflation to obtain a model which generates non-periodical oscillations of price level. This model is considered to be a realistic approximation of actual price level evolution. We start our analysis with the Fisherian equation of exchange. The assumption on non-variability of the velocity of money circulation parameter is relaxed in favour of dependence on expected inflation. The resulting model of inflation is a two-equation model where price evolution depends on production dynamics which is assumed to be an exogenous variable. After that, the two-equation model is re-formulated as an autonomous system to a model where production dynamics is determined by a Kaldorian type's model. By adding Kaldor's model to the two equation system, we create a four equation model. Both our models are able to generate more complex dynamics, i.e. non-linear cycles and chaos, which we examine by generating time series from numerical example and analyse them with the help of an advanced non-linear method.

Keywords: Price dynamics, two-equation model, four-equation model, numerical examples, non-linear time series analysis
JEL classification: E32, E37

Published: January 1, 2013  Show citation

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Kodera, J., Van Tran, Q., & Vošvrda, M. (2013). Complex Price Dynamics in the Modified Kaldorian Model. Prague Economic Papers, 22(3), 358-384. doi: 10.18267/j.pep.457
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