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The Macroeconomics of Imperfect Capital Markets: Whither Saving-Investment Imbalances?

In: The Economics of Imperfect Markets

Author

Listed:
  • Roberto Tamborini

    (University of Trento)

Abstract

Starting with Wicksell and until the heyday of Keynesian economics, inflation, unemployment and business cycles were thought and taught mainly as problems originating from “saving-investment imbalances” due to some form of malfunctioning of the capital market. Whereas modern studies of imperfect capital markets have greatly improved our understanding of capital market failures, their impact on macroeconomics has remained surprisingly limited. The macroeconomic consequences of saving-investment imbalances are still undeveloped in this literature. The most popular macroeconomic model to date – the so-called New Neoclassical Synthesis – dispenses with capital market imperfections altogether. The aim of this paper is to fill this gap. After an overview of the historical foundations and the current state of the macroeconomics of imperfect capital markets, the paper presents a competitive, flex-price model of saving-investment imbalances where deviations of the market interest rate from the Wicksellian natural rate generate (disequilibrium) business cycles. Then the model is extended to make the market interest rate endogenous and to allow preliminary considerations to be made about monetary policy and the control of the interest rate over the business cycle.

Suggested Citation

  • Roberto Tamborini, 2010. "The Macroeconomics of Imperfect Capital Markets: Whither Saving-Investment Imbalances?," Contributions to Economics, in: Giorgio Calcagnini & Enrico Saltari (ed.), The Economics of Imperfect Markets, chapter 0, pages 137-166, Springer.
    • Handle: RePEc:spr:conchp:978-3-7908-2131-4_8
    DOI: 10.1007/978-3-7908-2131-4_8
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    1. Questions for John Taylor
      by Dirk in econoblog101 on 2009-05-28 18:37:23

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    2. Ronny Mazzocchi, 2013. "Investment-Saving Imbalances with Endogenous Capital Stock," DEM Discussion Papers 2013/14, Department of Economics and Management.
    3. Roberto Tamborini, 2010. "Monetary Policy With Investment–Saving Imbalances," Metroeconomica, Wiley Blackwell, vol. 61(3), pages 473-509, July.

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