Keynesian-Monetarist Dynamics and the Corridor

Christian Groth ()

No 93-13, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The idea that for small disturbances the full employment equilibrium is stable while for large disturbances it is unstable was coined by Leijonhufvud in the notion of a "corridor". We discuss the existence of a corridor in the standard Keynesian-Monetarist textbook macro-model. It turns out that though the full employment steady state of this model may be locally stable - which is the case when the well-known Cagan condition holds - the model is never globally stable. This is due to the inherent non-linearity in the demand for money function, arising from non-negativity of the nominal rate of interest. Thus, perhaps surprisingly, the Cagan condition is both necessary and sufficient for the existence of a corridor in the Keynesian-Monetarist model.

Keywords: IS-LM dynamics; global dynamics; corridor; deflation; liquidity trap; Hopf bifurcation (search for similar items in EconPapers)
JEL-codes: E12 E31 E32 E44 (search for similar items in EconPapers)
Pages: 11 pages
Date: 1993-11
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9313

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