IDEAS home Printed from
   My bibliography  Save this paper

Transmission Mechanism,equilibrium and Multiplier


  • Author One

    (Peking University)


Dear Sir or Madam: I am a scholar of macroeconomics, and now studying at the school of economics of Peking University in PRC. Although there is much to do to develop the education, academicians and students are active thinkers and raised many interesting questions. I followed some of the issue and proposed my own idea. As for the monetary transmission mechanism, many theories do not tell us the route from one static equilibrium point to another. Some academicians argue that the mechanism is like camera bellows, and we cannot and need not know the process. But we should at least prove that the economy is able to transmit from one point to another.. The cobweb model in microeconomics shows that although the equilibrium point is determined by the intersection of the supply curve and demand curve. However, after a shock to the supply, the economy will not always result in a convergent point, and even bounds larger and larger round the equilibrium. Statistics shows that although the economy sometimes fluctuates sharply around the equilibrium, it will generally become stable, and such cases as the out-of -equilibrium never exist for long. I think the problem partly lies in the assumption. The model implies that everyone must behave rigidly. In fact, individuals are unpredictable, and a mathematical model cannot simplify their behavioral. Moreover, some academicians made similar misleading deduction of the monetary transmission mechanism. Deduction 1 shows their theory. I personally think that although the multiplier theory is a wonderful tool to help us explain the change of economy, it also set our students` minds in a rigid way of thinking. I developed an alternative deduction, and designed a computer program, which may demonstrate the whole transmission process and strengthen my argument. I hope my argument can give our students a new idea, though it does not fully resolve the problem. During my study, I consulted several macroeconomists. Ben S. Bernanke, the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs at Princeton University, whom I contacted several times, gave me many valuable suggestions on the flaws of my article. Michael Parkin, professor of the University of Western Ontario, also gave me some terrific ideas. Professor N. Gregory Mankiw, University of Harvard, said that my article involved an issue of out-of-equilibrium IS-LM model, which was far from fully resolved in the economic field. I am really grateful to their help. I hope my article will be published soon so that we can discuss the unresolved issue openly, and call on the students of macroeconomics from all over the world to participate in the debate. Whether you publish it or nor, please notify me soon after a decision is made Address: building 38, Room 409, Peking University, Beijing, PRC.

Suggested Citation

  • Author One, 2001. "Transmission Mechanism,equilibrium and Multiplier," Macroeconomics 0109003, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0109003 Note: Type of Document - WordPerfect; prepared on IBM PC - PC-TEX/;

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, June.
    2. Rudiger Dornbusch, 1987. "Open Economy Macroeconomics: New Directions," NBER Working Papers 2372, National Bureau of Economic Research, Inc.
    3. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839, March.
    4. Patterson, K D & Stephenson, M J, 1988. "Stock-Flow Consistent Accounting: A Macroeconomic Perspective," Economic Journal, Royal Economic Society, vol. 98(392), pages 787-800, September.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    6. Philip Arestis & Iris Biefang-Frisancho Mariscal & Andrew Brown & Malcolm Sawyer, 2001. "The Causes of Euro Instability," Economics Working Paper Archive wp_324, Levy Economics Institute.
    7. Coutts, Ken & Godley, Wynne, 1990. "Prosperity and Foreign Trade in the 1990s: Britain's Strategic Problem," Oxford Review of Economic Policy, Oxford University Press, vol. 6(3), pages 82-92, Autumn.
    8. Chinn, Menzie David & Dooley, Michael P., 1999. "International monetary arrangements in the Asia-Pacific before and after," Journal of Asian Economics, Elsevier, vol. 10(3), pages 361-384.
    9. Marc Lavoie, 2001. "Endogenous Money in a Coherent Stock-Flow Framework," Economics Working Paper Archive wp_325, Levy Economics Institute.
    10. Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 259-293, Special I.
    11. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    12. Jacques J. Polak, 1995. "Fifty Years of Exchange Rate Research and Policy at the International Monetary Fund," IMF Staff Papers, Palgrave Macmillan, vol. 42(4), pages 734-761, December.
    13. Dimitri B. Papadimitriou & L. Randall Wray, "undated". "Fiscal Policy For the Coming Recession: Large Tax Cuts are Needed to Prevent a Hard Landing," Economics Policy Note Archive 01-2, Levy Economics Institute.
    14. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Economics Working Paper Archive wp_302, Levy Economics Institute.
    15. Roe, Alan R, 1973. "The Case for Flow of Funds and National Balance Sheet Accounts," Economic Journal, Royal Economic Society, vol. 83(330), pages 399-420, June.
    16. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
    17. Philip Arestis & Kevin McCauley & Malcolm Sawyer, "undated". "The Future of the Euro: Is There an Alternative to the Stability and Growth Pact?," Economics Public Policy Brief Archive ppb_63, Levy Economics Institute.
    18. Philip Arestis & Malcolm Sawyer, 2001. "Will the Euro Bring Economic Crisis to Europe?," Macroeconomics 0103003, EconWPA.
    19. Pyatt, Graham & Round, Jeffrey I, 1977. "Social Accounting Matrices for Development Planning," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(4), pages 339-364, December.
    20. Christodoulakis, Nicos & Godley, Wynne, 1987. "Macroeconomic consequences of alternative trade policy options," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 405-436.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Monetary transmission mechanism; multiplier;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:wpa:wuwpma:0109003. 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: (EconWPA). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.