A partial differential equation to express a business cycle :an implication for Japan's law interest policy
This study presents an equation of income derived from the Keynesian IS curve and the consumption Euler equation that explains the business cycle. Drawing on multi-period data from Japan, the model confirms the conventional wisdom that the appropriate policy response to an inflationary gap is to increase the interest rate when economic growth accelerates and decrease it when growth decelerates. However, the model indicates that to stabilize a deflationary gap, policymakers should decrease the interest rate when growth accelerates and increase it when growth decelerates. This prescription defies generations of conventional wisdom but fits the historical data remarkably well.
|Date of creation:||14 Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35166. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.