IS-LM stability revisited: Samuelson was right, Modigliani was wrong
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2012
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Pontificia Universidad Católica del Perú. Departamento de Economía
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En el modelo IS-LM de Hicks, cuando la propensión marginal a gastar es mayor que uno, el multiplicador keynesiano es negativo y la IS tiene pendiente negativa. Keynes declaró este caso como completamente inestable. La literatura posterior, desde Modigliani (1944) hasta nuestros días, incluyendo a Varian (1977) y Sargent (1987), determinó que en este caso especial el modelo IS-LM es estable cuando la pendiente de la LM es mayor que la de la IS. En línea con Samuelson (1941), este artículo muestra que en este caso especial el modelo es estable cuando la pendiente de la IS es mayor que la de la LM. Sin embargo, en este caso estable, el modelo no tiene un significado económico útil. Primero, los valores de equilibrio de la producción y la tasa de interés son negativos. Segundo, dado que el multiplicador keynesiano es negativo, una expansión de la demanda reduce la producción.
In Hicks’s IS-LM model, when the marginal propensity to spend is greater than one, the Keynesian multiplier is negative and the IS has a positive slope. Keynes deemed this case as totally unstable. Further literature, from Modigliani (1944) through our days, including Varian (1977) and Sargent (1987), determined that in this special case the IS-LM model is stable when the LM slope is greater than the IS.In line with Samuelson (1941), this article shows that in this case the model is stable when the IS slope is greater than the LM slope. However, in this stable case, the model does not carry a useful economic meaning. Firstly, the equilibrium values of production and interest rates are negative. Secondly, since the Keynesian multiplier is negative, an expansion of demand reduces output.
In Hicks’s IS-LM model, when the marginal propensity to spend is greater than one, the Keynesian multiplier is negative and the IS has a positive slope. Keynes deemed this case as totally unstable. Further literature, from Modigliani (1944) through our days, including Varian (1977) and Sargent (1987), determined that in this special case the IS-LM model is stable when the LM slope is greater than the IS.In line with Samuelson (1941), this article shows that in this case the model is stable when the IS slope is greater than the LM slope. However, in this stable case, the model does not carry a useful economic meaning. Firstly, the equilibrium values of production and interest rates are negative. Secondly, since the Keynesian multiplier is negative, an expansion of demand reduces output.
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Macroeconomía--Modelos matemáticos
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