The Dynamics of Economy and Equilibrium Growth Rate Quantification with Constant Stock of Bonds

Gheorghe Oprescu and Ana Andrei
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Gheorghe Oprescu: Bucharest Academy of Economic Studies
Ana Andrei: Bucharest Academy of Economic Studies

Theoretical and Applied Economics, 2011, vol. 5(558)(supplement), issue 5(558)(supplement), 839-849

Abstract: Equilibrium growth rate stated by us is based on equilibrium evolution of economy IS-LM-SRAS, where the equations IS and LM are liniar specificated in real GDP, nominal interest rate and real wealth, and the SRAS curve is also linear, infered from linear Phillips curve. The evolution of the economy is determined from two dynamic continuous time equations: the dynamics of expected inflation rate, specified as adaptive mechanism with respect to current inflation rate, and the wealth dynamics, the last arising from the policy of budget deficit finance. As a consequence, the dynamics of economy depends on the policies of the government and the Central Bank. The paper comprises three parts: the dynamic model deduction, long run and short run dynamics of the economy, money finance debt, when b b t = policy is applied, deduction of the equilibrium growth rate for this policy.

Keywords: IS-LM-SRAS equilibrium; real wealth and expected inflation dynamics; monetary policy; Riccati equation; economic equilibrium growth rate. (search for similar items in EconPapers)
Date: 2011
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