Stabilization Policies and Business Cycle Dynamics

Hajime Hori
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Hajime Hori: Tohoku University

Chapter Chapter 3 in Business Cycle Dynamics and Stabilization Policies, 2017, pp 77-135 from Springer

Abstract: Abstract Stabilization policies interfere with the dynamic workings of the economic system to which they are applied. As a result, they necessarily generate some dynamic repercussions in the process. This chapter analyzes the dynamic interplay between stabilization policies, capital accumulation, and business cycles. Capital accumulation is an integral part of business cycles. It is not just a component of demand but an addition to the economy’s productive capacity, and, as such, has a lasting influence on employment. As a result, by affecting capital accumulation, stabilization policies can modify the entire shape of business cycles. Assuming a feedback-type policy function, it is shown that, due to the crowding-out effect of fiscal expenditures, too intensive implementation of fiscal stabilization policies leads to instability of the dynamics, but that suitably coordinated monetary policy may be capable of recovering stability.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-981-10-3081-9_3

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DOI: 10.1007/978-981-10-3081-9_3

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