A Dynamical Model of Business-Cycle Asymmetries:Extending Goodwin

Abstract

A rarely noted, economically unrealistic feature of Goodwin’s (1967; 1972) celebrated ‘growth-cycle’ model is that its state variables — the wage share of output and the employment proportion — can exceed unity. We propose a novel extension of the two-variable dynamical system which ensures that its solutions remain within the economically feasible region, i.e. the unit square of the wage-share–employment-proportion phase plane. In a further extension, we obtain a model which, besides possessing a richer economic interpretation than the original, is able to generate asymmetric solution cycles. We use numerical techniques to investigate the new model’s properties; in particular, we examine business-cycle deepness and steepness.