Disequilibrium Growth Theory

Static disequilibrium economic theory fails to analyze the dynamic effects of market disequilibrium, whereas standard growth theory always assumes markets to be in equilibrium. Both shortcomings can be overcome by disequilibrium growth theory. A problem arises, however, because different short-term disequilibrium regimes give rise to differential equations. The dynamic analysis, therefore, has to take into consideration the possibility of regime switching. Various solutions have been put forward for this problem, but, generally, they do not give unique solutions. The method developed by Filippov gives a unique solution that coincides with the classical solution to differential equations in the interior of the regimes. This approach has been used in several papers in the past decade. This text aims to fill in the gap in the literature on what has been achieved so far.