How to Reduce Unemployment: Notes on Macro-Economic Stability and Dynamics
In this paper, I explore the out-of-equilibrium macro-economic dynamic behaviour of the Farmer’s (2010d) ME-NA model. Specifically, preserving the assumption that microeconomic adjustments are instantaneous, I build a dynamic model in continuous time that describes the macro-economic adjustments of the value of output and the interest rate. Within this framework, I show that the model economy has a unique stationary solution whose dynamics is locally stable. Moreover, simulating the model economy under the baseline calibration, I show that the adjustments towards the steady-state equilibrium occur through endogenous convergent oscillations while the most promising way out from a finance-induced recession combines a fiscal expansion with interventions aimed at altering the trade-off between holding risky and safe assets.
|Date of creation:||10 Oct 2010|
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- Farmer, Roger E A, 2009. "Fiscal Policy Can Reduce Unemployment: But There is a Better Alternative," CEPR Discussion Papers 7526, C.E.P.R. Discussion Papers.
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- Farmer, Roger E.A., 2010. "How to reduce unemployment: A new policy proposal," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 557-572, July.
- Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
- P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
- Roger E. A. Farmer, 2008. "Aggregate demand and supply," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(1), pages 77-93.
- Roger E. A. Farmer, 2007. "Aggregate Demand and Supply," NBER Working Papers 13406, National Bureau of Economic Research, Inc.
- Varian, Hal R, 1977. " The Stability of a Disequilibrium IS-LM Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 260-270.
- Farmer, Roger, 2010. "Expectations, Employment and Prices," OUP Catalogue, Oxford University Press, number 9780195397901.
- Chang, Winston W & Smyth, David J, 1972. "Stability and Instability of IS-LM Equilibrium," Oxford Economic Papers, Oxford University Press, vol. 24(3), pages 372-384, November.
- Marco Guerrazzi, 2010. "Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle," Discussion Papers 2010/95, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy. Full references (including those not matched with items on IDEAS)
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