How to Reduce Unemployment: Notes on Macro-Economic Stability and Dynamics

Marco Guerrazzi

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: In this paper, I explore the out-of-equilibrium macro-economic dynamic behaviour of the Farmer's (2010d) ME-NA model. Specifically, preserving the assumption that microeconomic adjustments are instantaneous, I build a dynamic model in continuous time that describes the macro-economic adjustments of the value of output and the interest rate. Within this framework, I show that the model economy has a unique stationary solution whose dynamics is locally stable. Moreover, simulating the model economy under the baseline calibration, I show that the adjustments towards the steady-state equilibrium occur through endogenous convergent oscillations while the most promising way out from a finance-induced recession combines a fiscal expansion with interventions aimed at altering the trade-off between holding risky and safe assets.

Keywords: Old Keynesian Economics; ME-NA Schedules; Short-Run Macroeconomic Fluctuations. (search for similar items in EconPapers)
JEL-codes: E12 E32 E62 (search for similar items in EconPapers)
Date: 2010-10-10
New Economics Papers: this item is included in nep-cba and nep-mac
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2010/106

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