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An application: Pension systems and transitions

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  • Vîntu, Denis

Abstract

The classical IS-LM model does not have inflation and inflation expectation in it; it is exogenous. The LM curve shifts as the price level changes and subsequently the real money supply changes assuming the money stock stays the same. The decreasing interest rate pressure on the private sector translates into an accelerating rise in investments. Suppose an economy is at unemployment equilibrium. Inflation is stable so the central bank has no price-caused reason to intervene. To stimulate the economy, the central bank cuts (nominal) interest rate horizon. One type frequently discussed is when expansionary fiscal policy reduces investment spending by the private sector. The government spending is "crowding out" investment because it is demanding more loanable funds and thus causing increased interest rates and therefore reducing investment spending. This basic analysis has been broadened to multiple channels that might leave total output little changed or even smaller. As Keynesian economics, the Phillips curve provided a menu of tradeoffs for policy-makers: They could use demand management policies to increase output and decrease unemployment, but this could only be done at the expense of higher inflation.

Suggested Citation

  • Vîntu, Denis, 2022. "An application: Pension systems and transitions," MPRA Paper 113128, University Library of Munich, Germany, revised May 2022.
    • Handle: RePEc:pra:mprapa:113128
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    References listed on IDEAS

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    More about this item

    Keywords

    IS-LM model; dynamic general equilibrium (DGE); Monetary Policy; Policy Design and Consistency; discrete regression; prices; econometric methods;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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