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Rethinking Macroeconomic Policy within a Simple Dynamic Model
Author(s) -
Almudi Isabel,
FatasVillafranca Francisco,
Jarne Gloria,
SanchezCholiz Julio
Publication year - 2017
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12133
Subject(s) - economics , monetary policy , endogenous growth theory , macro , simple (philosophy) , capital (architecture) , macroeconomics , fiscal policy , stability (learning theory) , debt , econometrics , growth model , monetary economics , keynesian economics , human capital , computer science , history , philosophy , archaeology , epistemology , machine learning , programming language , economic growth
We propose a simple macro‐dynamic model to rethink standard policy prescriptions. Our model includes exogenous growth, endogenous capital accumulation and debt, demand‐driven production with a non‐linear IS curve, a dynamic Phillips curve, and fiscal and monetary policy instruments. It has multiple steady states with different stability properties, and it is analytically tractable to a significant extent. We complete the analytical results with simulations. We find alternative growth patterns, endogenous fluctuations, and demand‐driven level effects even in the long‐run. For certain steady states the model shows saddle‐path type instabilities, which lead us to reflect on fiscal and monetary policy standards.