The ‘Farmerian’ Approach to Ending a Finance‐Induced Recession: Notes on Stability and Dynamics
2012; Wiley; Volume: 41; Issue: 1-2 Linguagem: Inglês
10.1111/j.1468-0300.2012.00240.x
ISSN1468-0300
Autores Tópico(s)Economic theories and models
ResumoIn this paper, I explore the out‐of‐equilibrium dynamics of Farmer's ME‐NA model. Maintaining the assumption that all the variables continuously have the same time reference, I build a model that describes the adjustments of the value of output and the interest rate under the hypothesis that public debt and the stock market value are given. Within this framework, I show that the economy has a unique stationary solution whose dynamics are stable. Moreover, simulating the model under its baseline calibration, I show that adjustments towards the steady‐state occur through convergent oscillations while the most promising way out from a finance‐induced recession is a policy mix that combines a mild fiscal expansion with interventions aimed at altering the trade‐off between holding risky and safe assets.
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