A Note on the Stability of Full Employment
This note investigates the stability properties of the Keynesian macro-model under the assumption of slow adjustment of nominal wages and expectations of inflation. First, the stability conditions of the 'flexible-interest-rate regime' are related to those derived by Cagan (1956) and Tobin (1975), emphasising the potentially destabilising effect of wage flexibility. Then, taking the restriction of a zero floor to the nominal interest rate into account it is shown that the model exhibits 'corridor stability'. From this follows the conjecture that increasing the rate of steady-state inflation makes it 'more probable' that the system returns to full-employment after a shock of given size.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 14 (2002)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CRPE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CRPE20|
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.:
- Tobin, James, 1975.
"Keynesian Models of Recession and Depression,"
American Economic Review,
American Economic Association, vol. 65(2), pages 195-202, May.
- James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
- De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-1044, December.
- J. Bradford De Long & Lawrence H. Summers, 1985. "Is Increased Price Flexibility Stabilizing?," NBER Working Papers 1686, National Bureau of Economic Research, Inc.
- Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
- James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
- James Tobin, 1991. "Price Flexibility and Output Stability: An Old Keynesian View," Cowles Foundation Discussion Papers 994R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1991.
- Howitt, Peter W, 1978. " The Limits to Stability of a Full-employment Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(3), pages 265-282.
- Christian Groth, 1993. "Some unfamiliar dynamics of a familiar macro model a note," Journal of Economics, Springer, vol. 58(3), pages 293-305, October.
- Peter Flaschel & Reiner Franke, 2000. "An Old-Keynesian Note on Destabilizing Price Flexibility," Review of Political Economy, Taylor & Francis Journals, vol. 12(3), pages 273-283. Full references (including those not matched with items on IDEAS)