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Money, Income, Inflation and the Acceleration Principle

Christos Karpetis () and Erotokritos Varelas
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Christos Karpetis: University of Macedonia, Department of Economics, Postal: 156 Egnatia Street, GR-540 06 Thessaloniki, Greece ,,

Economia Internazionale / International Economics, 2005, vol. 58, issue 2, 179-201

Abstract: In this paper we develop a simple dynamic New Keynesian type model using the multiplier – accelerator principle in our effort to determine the time paths of income, actual and expected inflation towards their long – run equilibrium values. Assuming that expectations are adaptive, we determine and solve a second order system of difference equations with constant coefficients. The dynamic properties of the system as well as the parameters that affect the speed of convergence towards the equilibrium are examined and are tested through a simulation procedure. Moreover, we present the simulation results concerning the effects on the equilibrium values of real stock of money, real income and actual and expected inflation, which ensue from the exercise of an expansionary fiscal policy on behalf of government and/or the intervention of Central Bank in money market in order to achieve it’s goal.

Keywords: Accelerator; money supply; income; inflation; expectations; fluctuations; business cycles (search for similar items in EconPapers)
JEL-codes: C61 E12 E31 E32 E51 E52 E63 (search for similar items in EconPapers)
Date: 2005
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