The Stability of a Disequilibrium IS-LM Model

Hal R. Varian
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Hal R. Varian: University of Michigan

A chapter in Topics in Disequilibrium Economics, 1978, pp 114-124 from Palgrave Macmillan

Abstract: Abstract A disequilibrium version of the standard IS-LM model is constructed and used to analyze the stability of the model. The main feature of the disequilibrium behavior turns out to be a spillover from the money market to the output market; if there is an excess demand for loanable funds (or an excess supply of bonds) firms will be unable to finance all of their desired investment, and aggregate demand will therefore be smaller than would otherwise be the case. This spillover has certain implications for the dynamic behavior of the model.

Keywords: Interest Rate; Aggregate Demand; Excess Demand; Multiple Equilibrium; Money Market (search for similar items in EconPapers)
Date: 1978
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-03917-3_7

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DOI: 10.1007/978-1-349-03917-3_7

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