The Long-Run Properties of an Income-Expenditure Model

Bibliographic Data

ID9723834
AuthorsUri M Possen (corresponding author)
Year1979
Volume46
Issue182
Pages159
Publication date1979-05-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueEconomica (JOURNAL)
Journal identifiersISSN: 0013-0427 • E-ISSN: 1468-0335
PublisherJSTOR (PUBLISHER)
DOI10.2307/2553188
OpenAlexW2048399122
LanguageEN
Citations received2
References cited9

A concern of macroeconomics in recent years has been to synthesize incomeexpenditure theory with neoclassical growth theory. This paper attempts to bridge this gap by embedding a short-run comparative static model similar to the standard Keynesian one into a dynamic framework. This integration demonstrates explicitly that some of the short-run comparative static models are merely momentary equilibria of more general dynamic models. The short-run model used in this integration differs from the standard Keynesian model in that it does not assume bonds and claims to real reproducible capital to be perfect substitutes in private portfolios. A variant of the model presented here was first proposed by Tobin (1969) and a similar model has recently been investigated by Brunner and Meltzer (1972, 1973).1 However, since the properties of the short-run model are discussed at length in another paper (Possen, 1974), the short-run model is only briefly described here. Once the short-run model has been described, it is incorporated into the longrun dynamic framework. Although others have worked with long-run models that allow the employment level to vary,2 the long-run framework that is the closest to the one used here is the full-employment model first proposed by Tobin (1965) and later studied by Sidrauski (1967). The model in this paper adds to that of Tobin-Sidrauski a Phillips Curve and a government budget constraint which allows for government expenditures, interest payments on government debt, and open-market operations. The comparative static results obtained from the longrun model, therefore, although more general than those obtained from TobinSidrauski, are consistent with theirs. The advantage of the formulation used in this paper is that it builds a framework that not only has very familiar short-run properties and gives more general long-run results, but also is useful for the study of questions related to the interrelationship of inflation and unemployment.3 The paper is organized into three sections. Section I presents the model, Section IT discusses the long-run properties of the model and the local stability conditions, and Section III summarizes the argument

Constraint (computer-aided design) · Econometrics · Economics · Exchange rate · Fiscal policy · Government Debt · Government spending · Keynesian economics · Macroeconomic model · Macroeconomics · Monetary policy · New Keynesian economics · Open economy · Ricardian equivalence · Short run · Welfare · Economic Growth and Productivity · Economic theories and models · Economic Theory and Policy · Mathematics

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