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  1. Macroeconomic fluctuations in a New Keynesian disequilibrium model
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Mooney, JR. Data 2, KB Vol. Cargill A U. Home Japanese Home. Constitution; Legal tender cases; Monetary versus fiscal policy. The Great Moderation and the U. External Imbalance.

Macroeconomic fluctuations in a New Keynesian disequilibrium model

Stefan Ingves, Christine M. McCallum, Maurice Obstfeld. Kunio Okina, Allan H. Do Currency Regimes Matter in the 21st Century? Should Japanese Banks Be Recapitalized? Is There a Desirable Rate of Inflation?

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What Happened to Japanese Banks? What Is Systemic Risk? Is Japan Special? Yet one aspect [8]. He did this by creating a model in which the increases the likelihood of bankruptcy and not future- price level of financial assets is determined in financial wealth. This was earlier pointed out by Irving Fisher, markets. Later Hyman Minsky called a some degree of liquidity. And it is grand, while the ever-larger A capital-asset is an investment which creates income application of leverage puts upward pressure on asset and can later be sold. It produces an income stream prices. There is nothing like a bull market to make ge- present-income and also can be sold in the future fu- niuses out of levered dunces.

Speculation begets ever ture-liquidity. The time dimension is from T1 of a riskier debt arrangements, until they have produced a present-income to T2 of future-liquidity. This present- bubble in asset prices. This exchange LOAN takes place in a negotiation in which the borrower de- monstrates to the satisfaction of the lender—that the money of the future part of the contract will be forth- coming.

In Figure 3, we graph this impact of leverage on a 4 shows the NASDAQ stock market index in the United price equilibrium model—by modifying the 2-dimen- States for the time period from to This graph shows a supply-de- to Investor enthusiasm for businesses in the mand curve at two different times, T1 and later T2. If year —a three-fold growth in two years—a stock no speculation occurs in an asset market financial mar- market bubble.

But if speculation in the future-price at time T2 three-fold drop—wiping out the earlier stock market in- occurs in a financial market, a price bubble can begin. Bank panics close down risky banks, and freeze next to a real-estate bubble in and a financial crash available credit. When too much credit is frozen in an of the US banking system in , due to the sale of economy, businesses have no access to operating funds, fraudulent mortgage-asset-based financial derivatives.

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Three-dimensional price, quantity, time supply-demand-price-disequilibrium chart—over time. US stock market index as a price-disequilibrium chart. BETZ exists, just ready for bursting. We can show this connection Because of the phenomena of financial bubbles, eco- between models of financial bubbles and economic re- nomic instability was seen by Neo-Keynesians as inhe- cessions in Figure 7.

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Regulatory intervention should occur before the criti- cal time of Ponzi financing, as this time indicates a forthcoming devaluation—a bursting of the bubble. The connection between financial bubbles and eco- Figure 6. Figure 7. Impact of instability in financial markets upon commodity markets.

BETZ 7 4. Integrating Models of Commodity and mentary within the larger context of a societal system. Financial Markets In this way, one can place the two models of com- modity and financial markets respectively on the pro- We have reviewed two kinds of economic models for duction and financial subsystems of the economic system commodity markets and financial markets, indicating plane, as in Figure 9.

The Neo-Classical Synthesis School This shows is how models from the two schools of had focused upon the production sub-system in which economics, exogenous and endogenous, relate to each the present price of a commodity is the key factor of other as complementary models—in production and in control in a production sub-system ; while the Neo- financial sub-systems—both in the framework of a so- Keynesian School focused upon a financial sub-system ciety's economic system. These two economic models are in which future price of a capital asset is the key factor partial models in an economy—not a model of the whole of control in a financial sub-system.

The information relationships between such How can one formally integrate these models in a con- societal partial models are functional and not causal. One can defined as appropriate for each model. In Data do not necessarily feed automatically from one societal dynamics, the major systems in an industrialized model to another, because societal models are not cau- society are classified into four kinds of sub-systems sally connected but functionally related.

If societal mod- economic, cultural, political, and technological [13]. Social financial system. Thus any economic system can be parti- tic models. Hence data for each economics partial model tioned into four sub-systems of production, market, must be functionally defined properly for each model. Betz, We show this in The connectedness between societal partial models is by Figure 8. This cross-dis- 5. Topological model of society as interacting systems of economy, politics, culture, and technology. This allows the tracking of a Rocked the Global Financial System and Humbled the financial bubble as a disequilibrium-price path. A stock-market-price- ea. Essays on Insta- cial Price-Disequilibrium Graph of a financial market. Sharpe Inc.

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Societal Dynamics. Springer, New York, Kindelberger and Z. Palgrave Macmillan, Basingstoke, Related Papers.