In this book we build on a theoretical approach the foundations for which were laid in the work The Dynamics of Keynesian Monetary Growth: Macrofoundations by two of the present authors. In that work we considered a hierarchically structured sequence of macrodynamic models, starting from Tobinian neoclassical monetary growth and its historical counterpart, the Keynes–Wicksell monetary growth models, leading then via Keynesian IS-LM growth dynamics to a model type that has been labelled the Keynes–Metzler–Goodwin (KMG) growth dynamics. In the present book we will extend the baseline KMG model in various directions, analysing it in a much more detailed way than in previous work and, most importantly, studying it also from the empirical and the numerical point of view. Special emphasis is placed on the dynamic feedback relationships and on endogenously generated business cycle fluctuations in a growth context. In the initial stages the study concentrates here on the private sector and, essentially, abstracts from policy issues. Gaining thereby basic insights into the stabilizing and destabilizing forces in the economy, modern discussions of monetary policy are also integrated later.

As shown in the work by Chiarella and Flaschel, the KMG model type manages to avoid a variety of problems associated with the traditional IS-LM growth model, such as the boundedness in the responsiveness of aggregate demand, multiple IS-LM equilibria, or discontinuities in phase space dynamics.