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Stabilizing an unstable economy: Fiscal and monetary policy, stocks, and the term structure of interest rates

  • Charpe, Matthieu
  • Flaschel, Peter
  • Hartmann, Florian
  • Proaño, Christian

Monetary and fiscal policy measures have been applied in order to avert the financial market collapse and counteract the global recession. In this paper we present an integrated macromodel which in particular focuses on the financial markets. We use a Tobin-like macroeconomic portfolio approach, and the interaction of heterogeneous agents on the financial market to characterize the potential for financial market instability. We show that specific but unorthodox fiscal and monetary policies have to be used to stabilize such unstable macroeconomies.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 5 (September)
Pages: 2129-2136

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:5:p:2129-2136
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Christina D. Romer, 1991. "What Ended the Great Depression?," NBER Working Papers 3829, National Bureau of Economic Research, Inc.
  2. Tobin, James, 1982. "Money and Finance in the Macroeconomic Process," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(2), pages 171-204, May.
  3. Farmer, Roger E.A., 2010. "How to reduce unemployment: A new policy proposal," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 557-572, July.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
  5. Asada, Toichiro & Chiarella, Carl & Flaschel, Peter & Mouakil, Tarik & Proaño, Christian R., 2009. "Stabilizing an unstable economy: on the choice of proper policy measures," Economics Discussion Papers 2009-50, Kiel Institute for the World Economy.
  6. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-48, November.
  7. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
  8. repec:cup:cbooks:9780521643511 is not listed on IDEAS
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