Standard money-in-utlity dynamic models assume satiable liquidity preference, and thereby prove the existence of a full employment steady state. Using the same model, Ono (1994) shows that under insatiable liquidity preference there is a case where a full employment steady state does not exist and then unemployment persistently occurs. Using both parametric and nonparametric methods this paper empirically finds that insatiable liquidity preference is strongly supported. Thus, without assuming any permanent distortion as Old and New Keynesians do, we can analyze an effective demand shortage in a dynamic optimization framework.
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Paper provided by Osaka - Institute of Social and Economic Research in its series Papers with number
461.
Length: 18 pages Date of creation: 1998 Date of revision: Handle: RePEc:fth:osakae:461
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Find related papers by JEL classification: E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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