IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwwuw/wuwp069.html
   My bibliography  Save this paper

Walras' Law and the IS-LM Model. A Tale of Progress and Regress

Author

Listed:
  • Hansjoerg Klausinger

    () (Department of Economics, Vienna University of Economics & B.A.)

Abstract

This paper deals with the integration of Walras' law into Keynesian macroeconomics and the attempts at a consistent specification of period models (beginning- vs. end-of-period-equilibrium). Three examples are examined where neglect of a consistent specification led to erroneous results: (1) the identication of the IS-condition with equilibrium of the "flow market" for bonds, (2) superficial treatments of the liquidity trap, and (3) the assumptions on the stochastic structure of monetary and real shocks in determining the optimal monetary instrument.

Suggested Citation

  • Hansjoerg Klausinger, 2000. "Walras' Law and the IS-LM Model. A Tale of Progress and Regress," Department of Economics Working Papers wuwp069, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp069
    Note: PDF Document
    as

    Download full text from publisher

    File URL: http://www.wu-wien.ac.at/inst/vw1/papers/wu-wp69.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Felderer, Bernhard & Homburg, Stefan, 2005. "Makroökonomik und neue Makroökonomik," EconStor Books, ZBW - German National Library of Economics, number 92556, March.
    2. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    3. Buiter, Willem H, 1980. "Walras' Law and All That: Budget Constraints and Balance Sheet Constraints in Period Models and Continuous Time Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 1-16, February.
    4. Woglom, Geoffrey, 1980. "Are period models well defined?," Journal of Macroeconomics, Elsevier, vol. 2(4), pages 333-350.
    5. S. T. Lowry (ed.), 1992. "Perspectives On The History Of Economic Thought," Books, Edward Elgar Publishing, number 290.
    6. Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 303-324, April.
    7. Hellwig, Martin, 1975. "The demand for money and bonds in continuous-time models," Journal of Economic Theory, Elsevier, vol. 11(3), pages 462-464, December.
    8. May, Josef, 1970. "Period analysis and continuous analysis in Patinkin's macroeconomic model," Journal of Economic Theory, Elsevier, vol. 2(1), pages 1-9, March.
    9. Ferguson, J David & Hart, William R, 1980. "Liquidity Preference or Loanable Funds: Interest Rate Determination in Market Disequilibrium," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 57-70, March.
    10. Bain, A D & McGregor, Peter G, 1985. "Buffer-Stock Monetarism and the Theory of Financial Buffers," The Manchester School of Economic & Social Studies, University of Manchester, vol. 53(4), pages 385-403, December.
    11. Buiter, Willem H & Eaton, Jonathan, 1981. "Keynesian Balance of Payments Models: Comment [On the Almost Total Inadequacy of Keynesian Balance-of-Payments Theory]," American Economic Review, American Economic Association, vol. 71(4), pages 784-795, September.
    12. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    13. S. T. Lowry (ed.), 1992. "Perspectives On The History Of Economic Thought," Books, Edward Elgar Publishing, number 291.
    14. Parkin, Michael, 1978. "A Comparison of Alternative Techniques of Monetary Control under Rational Expectations," The Manchester School of Economic & Social Studies, University of Manchester, vol. 46(3), pages 252-287, September.
    15. Laidler, David, 1984. "The 'Buffer Stock' Notion in Monetary Economics," Economic Journal, Royal Economic Society, vol. 94(376a), pages 17-34, Supplemen.
    16. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    17. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    18. Felderer, Bernhard & Homburg, Stefan, 1986. "Eine Fehlinterpretation des Keynesianischen Modells," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 457-468.
    19. McCaleb, Thomas S. & Sellon, Gordon Jr., 1980. "On the consistent specification of asset markets in macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 6(3), pages 401-415, July.
    20. Serge Coulombe, 1987. "A Note on the Pigou Effect and the Liquidity Trap," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(1), pages 163-165, September.
    21. Kuska, Edward A, 1978. "On the Almost Total Inadequacy of Keynesian Balance-of-Payments Theory," American Economic Review, American Economic Association, vol. 68(4), pages 659-670, September.
    22. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eckhard Hein, 2010. "Shareholder Value Orientation, Distribution And Growth-Short- And Medium-Run Effects In A Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 61(2), pages 302-332, May.
    2. Theresa Grafeneder-Weissteiner & Klaus Prettner, 2009. "Agglomeration and population ageing in a two region model of exogenous growth," VID Working Papers 0901, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    3. Engelbert Stockhammer & Paul Ramskogler, 2009. "Post-Keynesian economics How to move forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 227-246.
    4. Theresa Grafeneder-Weissteiner, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Papers wuwp132, Vienna University of Economics and Business, Department of Economics.
    5. Grafeneder-Weissteiner, Theresa & Prettner, Klaus, 2010. "Agglomeration processes in aging societies," Department of Economics Working Paper Series 1620, WU Vienna University of Economics and Business.
    6. Badinger, Harald & Kubin, Ingrid, 2007. "Vom kurzfristigen zum mittelfristigen Gleichgewicht in einer offenen Volkswirtschaft unter fixen und flexiblen Wechselkursen," Department of Economics Working Paper Series 666, WU Vienna University of Economics and Business.
    7. Hagemann, Harald, 2010. "L. Albert Hahn's Economic Theory of Bank Credit," Department of Economics Working Paper Series 2948, WU Vienna University of Economics and Business.
    8. Pasquale Commendatore & Ingrid Kubin & Carmelo Petraglia, 2009. "Footloose Capital and Productive Public Services," Chapters,in: Geography, Structural Change and Economic Development, chapter 1 Edward Elgar Publishing.
    9. Fellner, Gerlinde & Sutter, Matthias, 2008. "Causes, consequences, and cures of myopic loss aversion - an experimental investigation," Department of Economics Working Paper Series 244, WU Vienna University of Economics and Business.
    10. Engelbert Stockhammer & Lucas Grafl, 2010. "Financial Uncertainty and Business Investment," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 551-568.
    11. Grandner, Thomas, 2007. "Product differentiation in a linear city and wage bargaining," Department of Economics Working Paper Series 1158, WU Vienna University of Economics and Business.
    12. Paul Ramskogler, 2007. "Uncertainty, market power and credit rationing," Department of Economics Working Papers wuwp105, Vienna University of Economics and Business, Department of Economics.
    13. Steidl, Annemarie & Stockhammer, Engelbert, 2007. "Coming and leaving. Internal mobility in late Imperial Austria," Department of Economics Working Paper Series 768, WU Vienna University of Economics and Business.
    14. Özlem Onaran, 2007. "International financial markets and fragility in the Eastern Europe: "can it happen" here?," Department of Economics Working Papers wuwp108, Vienna University of Economics and Business, Department of Economics.
    15. Currie, Martin & Kubin, Ingrid, 2005. "Fixed price dynamics versus flexible price dynamics," Department of Economics Working Paper Series 114, WU Vienna University of Economics and Business.
    16. Engelbert Stockhammer & Paul Ramskogler, 2007. "Uncertainty and exploitation in history," Department of Economics Working Papers wuwp104, Vienna University of Economics and Business, Department of Economics.
    17. Rocha-Akis, Silvia, 2006. "Labour tax policies and strategic offshoring under unionised oligopoly," Department of Economics Working Paper Series 394, WU Vienna University of Economics and Business.
    18. Grafeneder-Weissteiner, Theresa, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Paper Series 902, WU Vienna University of Economics and Business.
    19. Smet, Koen, 2007. "Stuck in the middle? The structure of trade between South Africa and its major trading partners," Department of Economics Working Paper Series 876, WU Vienna University of Economics and Business.
    20. Riedl, Aleksandra & Rocha-Akis, Silvia, 2007. "Testing the tax competition theory: How elastic are national tax bases in western Europe?," Department of Economics Working Paper Series 860, WU Vienna University of Economics and Business.
    21. Figerl, Jürgen & Grandner, Thomas, 2008. "Job quality and wages in duopsony," Department of Economics Working Paper Series 1304, WU Vienna University of Economics and Business.

    More about this item

    Keywords

    Walras' Law; IS-LM-model; beginning-of-period-equilibrium; end-of-period-equilibrium; liquidity trap; optimal monetary instrument;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwwuw:wuwp069. 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: (Department of Economics). General contact details of provider: http://www.wu.ac.at/economics/en .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.