The Paradox of Thrift and Crowding-In of Private Investment in a Simple IS-LM Model
AbstractThis paper derives conditions for two key Keynesian propositions in a simple IS-LM model: (a) the paradox of thrift, and (b) the crowding-in of private investment expenditures by government expenditures. A linear speci cation of the model is then presented as a special case that can be used for empirical analysis. Using data for the US economy for the period 1959-2009, time series estimation of the linear model using instrumental variables regression shows that the paradox of thrift and crowding-in are real possibilities, especially in the sub-period, 1974-2009, that excludes the Golden Age of capitalism. JEL Categories: E12, E20.
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2009-14.
Date of creation: Nov 2009
Date of revision:
paradox of thrift; crowding-in; instrumental variables.;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
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