we can investigate the parameter corridor where monetary policy for example can re-
duce the endogenously generated fluctuations of this approach to Keynesian business
fluctuations.
Taking all this together our general conclusion will be that this framework not only
overcomes the anomalies of the Neoclassical Synthesis, Stage I, but also provides a co-
herent alternative to the New Keynesian theory of the business cycle, as sketched in Gali
(2000). This alternative is based on disequilibrium in the market for goods and labor,
on sluggish adjustment of prices as well as wages and on myopic perfect foresight inter-
acting with certain economic climate expression with a rich array of dynamic outcomes
that provide great potential for further generalizations. Some of these generalizations
are considered in Chiarella, Flaschel, Groh and Semmler (2000) and Chiarella, Flaschel
and Franke (2004). Our overall approach, which may be called a disequilibrium ap-
proach to business cycle modelling, thus provides a theoretical framework within which
to consider the contributions of authors such as Zarnowitz (1999) who also stresses the
dynamic interaction of many traditional macroeconomic building blocks.
References
Asada, T., Chiarella, C., Flaschel, P. and R. Franke (2003): Open Economy
Macrodynamics. An Integrated Disequilibrium Approach. Heidelberg: Springer
Verlag.
Asada, T., Chen, P., Chiarella, C. and P. Flaschel (2004): Keynesian dynam-
ics and the wage-price spiral. A baseline disequilibrium approach. UTS Sydney:
School of Finance and Economics.
Asada, T., Chiarella, C., Flaschel, P. and H. Hung (2004): Keynesian dy-
namics and the wage-price spiral. Numerical Analysis of a Baseline Disequilibrium
Model. UTS Sydney: School of Finance and Economics.
Barro, X. (1994): The aggregate supply / aggregate demand model. Eastern Economic
Journal, 20, 1-6.
Blanchard, O.J. and L. Katz (2000): Wage dynamics: Reconciling theory and
evidence. American Economic Review. Papers and Proceedings, 69 - 74.
Chen Pu (2003): Weak Exogeneity in Simultaneous Equations System. University of
Bielefeld: Discussion Paper No. 502.
Chen, P. and Flaschel, P. (2004): Testing the dynamics of wages and prices for the
US economy. Bielefeld: Center for Empirical Macroeconomics. Working paper.
Chiarella, C. and P. Flaschel (2000): The Dynamics of Keynesian Monetary
Growth: Macro Foundations. Cambridge, UK: Cambridge University Press.
Chiarella, C., P. Flaschel, G. Groh and W. Semmler (2000): Disequilibrium,
Growth and Labor Market Dynamics. Heidelberg: Springer Verlag.
27
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