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Fiscal Policy and the Economics of Financial Balances

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  • Gennaro Zezza

Abstract

This paper presents the main features of the macroeconomic model being used at The Levy Economics Institute of Bard College, which has proven to be a useful tool in tracking the current financial and economic crisis. We investigate the connections of the model to the "New Cambridge" approach, and discuss other recent approaches to the evolution of financial balances for all sectors of the economy. We will finally show the effects of fiscal policy in the model, and its implications for the proposed fiscal stimulus on the U.S. economy. We show that the New Cambridge hypothesis, which claimed that the private sector financial balance would be stable relative to income in the short run, does not hold for the short term in our model, but it does hold for the medium/long term. This implies that the major impact of the fiscal stimulus in the long run will be on the external imbalance, unless other measures are taken.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_569.

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Date of creation: Jul 2009
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Handle: RePEc:lev:wrkpap:wp_569

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Web page: http://www.levyinstitute.org

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  1. Incorporating the Rentier Sectors into a Financial Model
    by Michael in Michael Hudson on 2012-09-12 11:56:01
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Cited by:
  1. Michael Hudson & Dirk Bezemer, 2012. "Incorporating the Rentier Sectors into a Financial Model," World Economic Review, World Economics Association, vol. 2012(1), pages 1, September.
  2. Casadio, Paolo & Paradiso, Antonio, 2010. "Private sector balance, financial markets, and U.S. cycle: A SVAR analysis," MPRA Paper 28105, University Library of Munich, Germany.
  3. Sergio Cesaratto, 2012. "Neo-Kaleckian and Sraffian controversies on accumulation theory," Department of Economics University of Siena 650, Department of Economics, University of Siena.

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