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Fiscal and Monetary Policy Interaction in a Simple Accelerator Model

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  • Christos Karpetis
  • Erotokritos Varelas

Abstract

In this paper, a simple Keynesian and discrete time multiplier – accelerator model is developed, which results after the inclusion of the money market and a balanced government budget constraint in Samuelson’s ( 1939 ) business cycle model. The resulted model is proved to be less stable and the evolution of income around its equilibrium is more likely to exhibit a sinusoidal way of movement. The magnitude of the main tools of fiscal and monetary policy is assumed to be determined solely by the government and the Central Bank respectively, so that income’s constant amplitude around its intertemporal equilibrium value is minimized. Copyright International Atlantic Economic Society 2012

Suggested Citation

  • Christos Karpetis & Erotokritos Varelas, 2012. "Fiscal and Monetary Policy Interaction in a Simple Accelerator Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 199-214, May.
    • Handle: RePEc:kap:iaecre:v:18:y:2012:i:2:p:199-214:10.1007/s11294-012-9345-4
    DOI: 10.1007/s11294-012-9345-4
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    References listed on IDEAS

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    1. Luciano Fanti & Piero Manfredi, 2003. "Progressive Income Taxation and Economic Cycles: a Multiplier-Accelerator Model," Discussion Papers 2003/11, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Ip, Pui Chi, 1977. "Fiscal Policy and Stability in a Dynamic Macroeconomic Model with a Government Budget Constraint," Public Finance = Finances publiques, , vol. 32(1), pages 29-36.
    3. Ip, Pui Chi, 1977. "Fiscal Policy and Stability in a Dynamic Macroeconomic Model with a Government Budget Constraint-A Reply," Public Finance = Finances publiques, , vol. 32(3), pages 415-417.
    4. Frank Westerhoff, 2006. "Samuelson's multiplier-accelerator model revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 13(2), pages 89-92.
    5. David Laidler, 1968. "The Permanent-Income Concept In A Macro-Economic Model," Oxford Economic Papers, Oxford University Press, vol. 20(1), pages 11-23.
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    Cited by:

    1. Eleni Dalla, 2017. "Monetary policy implications on the investment decision: Do economies of scope in the banking sector matter?," Discussion Paper Series 2017_05, Department of Economics, University of Macedonia, revised Mar 2017.
    2. Eleni Dalla, 2018. "On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 11(5), pages 499-515.
    3. Ioannis K. Dassios & Mel T. Devine, 2016. "A macroeconomic mathematical model for the national income of a union of countries with interaction and trade," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-15, December.
    4. Gerasimos T. Soldatos, 2021. "In/Estabilidad bajo el impuesto sobre la renta ideal y el impuesto sobre el consumo ideal," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 44(124), pages 33-42, Enero.
    5. Cavalli, Fausto & Naimzada, Ahmad K. & Pecora, Nicolò, 2019. "Complex interplay between monetary and fiscal policies in a real economy model," Chaos, Solitons & Fractals, Elsevier, vol. 128(C), pages 318-330.
    6. Dalla, Eleni & Varelas, Erotokritos, 2016. "An economic model for the interpretation of business cycles and the efficiency of monetary policy," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 29-38.

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    More about this item

    Keywords

    Acceleration principle; Government budget constraint; Monetary growth; E30; E50; E62;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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