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Medium-run macrodynamics and the consensus view of stabilization policy

Policy implications of the present consensus view of stabilization policy depend on specific assumptions with regard to the equilibrium level of production. Thereby, the interpretation of equilibrium output rests on a separation of supply-side and demandside adjustment to macroeconomic shocks promoting a dichotomy of short-term and long-term macrodynamics. In contrast to this, there are several channels that promote procyclical stimulus of aggregate demand and a changing factor utilization to the accumulation and efficiency of an economy’s productive capacity. Medium-run macrodynamics call for a rather endogenous explanation of production capacity and challenge the uniqueness of long-term equilibria.

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Paper provided by Department of Economics, University of Hohenheim, Germany in its series Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim with number 322/2010.

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Length: 23 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:hoh:hohdip:322
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