Introduction

In this chapter we continue the calibration begun in chapter 5. Our aim is to provide a full set of numerical parameter values for the Keynes–Metzler–Goodwin model advanced in chapter 4, such that this six-dimensional system produces sustained (deterministic) growth cycles. In addition, the time series properties of the trajectories should be broadly compatible with stylized facts of the business cycle.

Regarding the wage-price dynamics of the KMG model, we can directly take over from chapter 5 the results for the so-called PPC module. This constitutes hierarchy levels 1 to 3 for the simulations in which we postulate exogenous sine wave motions for utilization and the capital growth rate. Moreover, the remainder of the KMG model can, in this respect, be decomposed into different hierarchy levels for the parameter search – levels 4 to 6, as it will turn out. All in all, we will have to determine fourteen behavioural parameters at this first stage of calibration, which does not include in the reckoning several other coefficients related to the steady-state relationships; these will be set on the basis of separate information.

In the second stage, we drop the sine waves for utilization u and instead consider the time series of its empirical counterpart, while the capital growth rate gk is still presumed to move synchronously with u. It will then have to be seen how all the endogenous variables generated in this way compare to the empirical series.