An Important Inconsistency at the Heart of the Standard Macroeconomic Model
The neoclassical macroeconomic dichotomy between real and nominal variables is shown to be generally false, even within the standard structure of the model. The model implicitly assumes that disbursements via interest payments on bonds somehow ensure that all profits are disbursed. But the two are generally different. Forcing them to match renders the model mathematically inconsistent. Alternately, distinguishing the two rectifies the inconsistency but destroys the dichotomy between real and nominal variables and dramatically alter the model's outcomes. One striking consequence is that a rise in the money supply can lead to a fall in prices.
Volume (Year): 24 (2002)
Issue (Month): 3 (April)
|Contact details of provider:|| Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Buiter, Willem H, 1980. "Walras' Law and All That: Budget Constraints and Balance Sheet Constraints in Period Models and Continuous Time Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 1-16, February.
When requesting a correction, please mention this item's handle: RePEc:mes:postke:v:24:y:2002:i:3:p:423-441. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Nguyen)The email address of this maintainer does not seem to be valid anymore. Please ask Chris Nguyen to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.