Rethinking Macroeconomic Policy within a Simple Dynamic Model

40 Pages Posted: 8 Jun 2017

See all articles by Isabel Almudi

Isabel Almudi

University of Zaragoza

Francisco Fatás-Villafranca

University of Zaragoza

Gloria Jarne

University of Zaragoza

Multiple version iconThere are 2 versions of this paper

Date Written: July 2017

Abstract

We propose a simple macro‐dynamic model to rethink standard policy prescriptions. Our model includes exogenous growth, endogenous capital accumulation and debt, demand‐driven production with a non‐linear IS curve, a dynamic Phillips curve, and fiscal and monetary policy instruments. It has multiple steady states with different stability properties, and it is analytically tractable to a significant extent. We complete the analytical results with simulations. We find alternative growth patterns, endogenous fluctuations, and demand‐driven level effects even in the long‐run. For certain steady states the model shows saddle‐path type instabilities, which lead us to reflect on fiscal and monetary policy standards.

Suggested Citation

Almudi, Isabel and Fatás-Villafranca, Francisco and Jarne, Gloria, Rethinking Macroeconomic Policy within a Simple Dynamic Model (July 2017). Metroeconomica, Vol. 68, Issue 3, pp. 425-464, 2017, Available at SSRN: https://ssrn.com/abstract=2982694 or http://dx.doi.org/10.1111/meca.12133

Isabel Almudi (Contact Author)

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

Francisco Fatás-Villafranca

University of Zaragoza ( email )

Zaragoza, 50005
Spain

Gloria Jarne

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

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