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Lecture 6: IS-LM (2)

Lecture 6: IS-LM (2). Review: Find equilibrium in goods and financial markets (Y,i). Monetary and fiscal policy Episodes Some dynamics Facts. Monetary Policy. s’. s. M. M. i. d. M. M. Money. Equilibrium in M rather than Central Bank M. Ms = H c + (1-c).

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Lecture 6: IS-LM (2)

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  1. Lecture 6: IS-LM (2) • Review: Find equilibrium in goods and financial markets (Y,i). Monetary and fiscal policy • Episodes • Some dynamics • Facts

  2. Monetary Policy s’ s M M i d M M Money

  3. Equilibrium in M rather than Central Bank M Ms = H c + (1-c) Ms = Md => H 1 = P Y L(i) c + (1-c) Examples: a) Y2k ; b) Prudence; c) OMO with multiplier

  4. LM LM i i i1 * i0 * Md(Y1) Md(Y0) Y1 Y0 Y M A) Expansionary Monetary Policy; B) Y2k

  5. IS OLD: Y = C(Y-T) + I + G I = I(Y,i) + - IS: Y = C(Y-T) + I(Y,i) + G Why IS?

  6. IS Z(i0) Z(i1) i0 A) Fiscal Policy; B) “Optimism” i1 IS Y Y0 Y1

  7. IS-LM Model i LM IS Y A) Fiscal policy; B) Monetary policy; C) Mix

  8. Episodes • The Clinton-Greenspan policy mix • German unification

  9. Dynamics i LM’ LM IS Y Monetary Contraction SLOW GOODS MARKET / FAST FINANCIAL MARKETS

  10. Facts • Insert Figure 5.11 • Insert Table 5.1

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