(, ) which is a positively sloping curve showing (Y,r) for which the money market is in equilibrium. The P = (1.4)

Transcription

1 ots lctu Th IS/LM modl fo an opn conomy is basd on a fixd pic lvl (vy sticky pics) and consists of a goods makt and a mony makt. Th goods makt is Y C+ I + G+ X εq (.) E SEK wh ε = is th al xchang at, E = th nominal xchang at and Q th volum of $ impots. C is consumption, I invstmnts, G govnmnt xpnditu in al tms and X xpots, such that nominal G is Y C + I + G + X EQ. Th componnts a dtmind by th spctiv functions C = C( Y, ) I = I() G = G X = X ε Y (, ) Q= Q( ε, Y) (.2) wh is th al at of intst ( = i E( π )), wh E is th xpctations opato and π = th at of inflation, i.. th lativ chang in th agggat pic lvl. Assuming ε = ε () w obtain by substitution of (.2) into (.) th IS cuv Y = Y() (.3) which is a ngativly sloping cuv showing (Y,) fo which th goods makt is in quilibium. Th mony makt is dscibd by th dmand fo al balancs M YL () i = (.4) fo fixd mony supply and pic lvl. Assuming stabl pics (I=) w obtain th LM cuv as Y = Y() (.5) which is a positivly sloping cuv showing (Y,) fo which th mony makt is in quilibium. Th two quations dtmin (Y,), th point wh th two cuvs intsct at th stabl pic lvl. Th agggat dmand cuv Y = Y( ) (.6) shows quilibium (Y,) at diffnt pic lvls. Th cuvs blow show a gaphical solution.

2 Diagam. Divation of AD cuv. To complt th modl quis an agggat supply schdul. In th intmdiat txtbooks th a sval vsions. Fo instanc, in (Robt E Hall and John B. Taylo, 997) th hillips cuv is basd on modl with staggd wag contacts, vy simila to th hillips cuv in (Wndy Calin and David Soskic, 26) o in (Olivi Blanchad, 23) which a basd on a Wag Stting/ic Stting modl, both lading to a positivly sloping supply cuv, which can also b obtaind fom modls basd on mispcptions. On such modl is th modl dvlopd by (Milton Fidman, 968) and (Edmund S. hlps, 967) in which woks a unawa of th gnal pic lvl and fom (adaptiv) xpctations about th al wag. A positiv dmand shock mak woks mispciv th al wag and supply too much labo to th makt. Th implication is incas in output, low poductivity and a low al wag. Th modl implis a positivly sloping agggat supply cuv as shown in th gaphs blow.

3 W/ / / f() W f() f() Y - Y=F(K,L) - Diagam 2. Divation of positivly sloping agggat supply cuv in Fidman/hlps modl. Th upp diagam shows how quilibium mploymnt and al wag chang in spons to an agggat dmand shock. f ( ) is th labo dmand schdul (maginal poduct of labo at a fixd capital stock). Th supply schdul g ( ) shows how th supply changs du to mispcptions, i.. whn `. Th middl diagam shows mploymnt and nominal wag at and pf( ) is th valu of th maginal poduct. g( ) is th labo supply cuv and g ( ) th xpctd valu of th supply. A positiv dmand incass th gnal pic lvl (sinc pics a flxibl in this modl) but < such that th woks a foold and supply too much labo. Anoth mispcption modl is th Lucas island modl with ational instad of adaptiv xpctations. Lucas also usd a policy ul instad of disctionay policy, s (Robt E. Lucas, J., 973). Lucas policy ul was stochastic dviations fom a constant gowth in mony supply: Δ mt = g + ut dfind in logaithms and hnc g bing th pcntag at of chang (th systmatic pat of policy) and u t bing a andom vaiabl. In Lucas modl fims a awa of th pic in thi own makt but not on makts outsid. As thy obsv a chang in th pic thy don t know if th chang is in th lativ pic, on thi makt lativ to oth makts, in cas thy should chang thi output, o whth it is an agggat pic chang, bing th sam as in oth makts and du to a montay policy chang, in which cas thy should lav output

4 unaltd. Each tim thy obsv a pic chang in thi makt thy ty to figu out whth it is lativ o absolut and stimats a pobability du to th obsvations of histoical shocks. Hnc, vy shock, bing lativ o agggat, implis a ctain ffct on output and th pic lvl, again implying a positivly sloping agggat supply cuv. D C no ffcts fom systmatic policy changs Supply cuv Diagam 3. Agggat supply. In diagam 3 a positivly sloping agggat supply cuv (oftn fd to as th shot un agggat supply cuv) intscts with th AD cuv at B. A positiv dmand shock incass th pic lvl and output as shown at point C and du to th spons of woks and fims in th mispcptions modls. In Lucas modl th would b no ffcts fom systmatic changs in th policy, i.. in th gowth paamt g in his modl. Aft th shocks a obsvd th conomy tuns to th oiginal quilibium B o vntually to th quilibium D, whth th shock is tansitoy o pmannt. Rfncs Blanchad, Olivi. Macoconomics. ntic Hall, 23. Calin, Wndy and Soskic, David. Macoconomics: Impfctions, Institutions, and olicis. Oxfod: Oxfod Univsity ss, 26. Fidman, Milton. "Th Rol of Montay olicy." Amican Economic Rviw, 968, 48, pp. 7. Hall, Robt E and Taylo, John B. Macoconomics. London: oton Intnational Studnt Edition, 997. Lucas, Robt E., J. "Som Intnational Evidnc on Output Inflation Tadoffs." Amican Economic Rviw, 973, 63(3), pp

5 hlps, Edmund S. "Mony Wag Dynamics and Labo Makt Equilibium." Jounal of olitical Economy, 967, 75(July/August), pp