TWO ALTERNATIVE APPROACHES TO FINANCIAL MODEL BUILDING

Abstract

ABSTRACT The paper compares the long and the short period models presented by Tobin and those that can be derived from the writings of Kaldor. It presents a Kaldorian model where the government deficit is financed through bonds and money, where inflation can occur, financial assets are allocated through portfolio decisions, and Kaldor's characterization of monetary and fiscal policies are taken into account. The model clarifies under which conditions the “Cambridge Equation” holds and reconciles two different Post‐Keynesian views on income distribution, since distributive variables are made to depend both on the rate of growth and on the money rate of interest.

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