Business cycles in a general equilibrium dynamic model with land value and rent

Abstract

This study shows economic oscillations due to periodic changes in some parameters in the economic model proposed by Zhang (2014). This paper generalizes Zhang’s model by allowing all the time-independent parameters to be time dependent. The model deals with the relationship between growth and inequality in a two-sector growth modelling framework with different time-dependent exogenous shocks. The model is based on the Walrasian general equilibrium theory and the Solow-Uzawa neoclassical growth theory. The study applies the utility function proposed by Zhang to describe the behaviour of households. We simulate the model to demonstrate the existence of equilibrium points, the motion of the dynamic system, and oscillations due to different exogenous shocks.

Keywords

• Walrasian general equilibrium theory
• neoclassical growth theory
• inequality in income and wealth
• economic fluctuations
• oscillatory shocks