An Optimizing IS-LM Framework with Endogenous Investment

Casares, Miguel; McCallum, Bennett T.

doi:10.3386/w7908

Cited by 39 publications

(15 citation statements)

References 5 publications

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“…However, the methodological framework does not change even when investment is grafted onto the system (e.g. Casares and McCallum, ; Woodford, , ch. 5).…”

Section: The Two Trianglesmentioning

confidence: 99%

Wicksell, Keynes, and the New Neoclassical Synthesis: What Can We Learn for Monetary Policy?

2014

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The New Neoclassical Synthesis (NNS) provides the established macroeconomic foundation for monetary policy. The Great Recession has, however, unveiled a number of unresolved issues. Prominent scholars have stressed the connections of the NNS with the founders of macroeconomic thought, Wicksell and Keynes. Our main contention is that the NNS fails to consider, and learn from, the hallmark of Wicksell's and Keynes's approaches to business cycles, namely investment–saving imbalances (ISI). Systematic studies of macroeconomic instability, and notably the Great Recession, give prominence to this phenomenon. Drawing on Wicksell's and Keynes's insights, this paper provides a framework to deal with ISI and monetary policy according to modern theoretical standards and techniques (e.g. agents seek to optimize intertemporally and markets clear). Section 2 of the paper clarifies some basic theoretical issues underlying the NNS vis‐à‐vis Wicksell and Keynes. Section 3 presents a dynamic model whereby it is possible to assess some basic issues concerning the macroeconomics of ISI that are at variance with the NNS. Section 4 shows how system stabilization can be achieved by means of a ‘Wicksellian’ interest‐rate rule, which, however, displays dynamic features and conditions that differ from the current NNS consensus. Central banks may thus learn that ISI deserve careful symptom monitoring, and that they require greater attention to the dynamic stability of choices of policy reaction functions.

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“…However, the methodological framework does not change even when investment is grafted onto the system (e.g. Casares and McCallum, ; Woodford, , ch. 5).…”

Section: The Two Trianglesmentioning

confidence: 99%

Wicksell, Keynes, and the New Neoclassical Synthesis: What Can We Learn for Monetary Policy?

2014

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“…For an open-economy extension of the model see McCallum and Nelson (2001). For a model with an endogenous capital stock see Casares and McCallum (2000). See also Romer (1996: 324) and the discussion in King and Kerr (1996: 55).…”

Section: Chapter 4 Monetary Policy In the New Keynesian Modelmentioning

confidence: 99%

Monetary Policy and the German Unemployment Problem in Macroeconomic Models

2005

Kieler Studien - Kiel Studies

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“… 13. Similar models have been presented by Casares and McCallum (2000), who set labor supply exogenous and by Dupor (2001), who does not model capital adjustment costs. …”

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confidence: 92%

Monetary Policy, Agency Costs and Output Dynamics

Linnemann

Schabert

2003

German Economic Review

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This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a humpshaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too.JEL classification: E32, E44, E52.

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An Optimizing IS-LM Framework with Endogenous Investment

Cited by 39 publications

References 5 publications

Wicksell, Keynes, and the New Neoclassical Synthesis: What Can We Learn for Monetary Policy?

Wicksell, Keynes, and the New Neoclassical Synthesis: What Can We Learn for Monetary Policy?

Monetary Policy and the German Unemployment Problem in Macroeconomic Models

Monetary Policy, Agency Costs and Output Dynamics

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