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The necessary condition for stability in Tobin's Walras-Keynes-Phillips model: A note

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  • Subrata Guha

    ()
    (CESP, Jawaharlal Nehru University, New Delhi, India)

Abstract

In a 1975 paper entitled 'Keynesian Models of Recession and Depression' James Tobin sought to formalize in a dynamic model Keynes' argument that unemployment could persist in an economy with flexible wages and prices. In the course of his analysis Tobin presented, without proof, a 'critical necessary condition for stability' of the full employment equilibrium which is violated when expenditure is sufficiently responsive to the expected inflation rate. This note contends that later attempts in the literature to prove that Tobin's condition is necessary for stability have been unsuccessful and provides a valid proof of the same result. The note also demonstrates the existence of a sufficient condition for instability of equilibrium which is weaker than the negation of Tobin's condition.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P8.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 1 ()
Pages: 66-74

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Handle: RePEc:ebl:ecbull:eb-10-00688

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Keywords: Keynes; Tobin-Mundell effect; stability of equilibrium;

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  1. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
  2. McDonald, Ian M, 1980. "On the Comparison of the Stability Implications of Marshallian and Walrasian Adjustment Schemes: Note," American Economic Review, American Economic Association, vol. 70(4), pages 829-33, September.
  3. Robert W. Dimand, 2005. "Dimand on the Corridor of Stability," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(1), pages 185-199, 01.
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