The Experts below are selected from a list of 300 Experts worldwide ranked by ideXlab platform
Norikazu Takami - One of the best experts on this subject based on the ideXlab platform.
-
ModelS AND MATHEMATICS: HOW PIGOU CAME TO ADOPT THE IS-LM-Model REASONING
Journal of the History of Economic Thought, 2014Co-Authors: Norikazu TakamiAbstract:The paper investigates how Arthur Pigou came to adopt the reasoning essentially based on the working of the IS-LM Model and to admit that money wage cuts are neutral to employment under the liquidity trap. This occurred through his involvement in the controversy with John Maynard Keynes in 1937–38. In the first instance, Pigou used a simple Model to oppose Keynes’s assertion on such neutrality. Pigou (and Keynes too) applied verbal logical analysis to the Model to derive his conclusions. Submitting a paper to the Economic Journal, Nicholas Kaldor analyzed Pigou’s Model in mathematical terms and asserted that Pigou derived inconsistent conclusions from his Model. Kaldor’s method eventually convinced Pigou, Keynes, and Dennis Robertson (who participated in the debate in correspondence). The paper thus argues that the controversy was concluded when one form of Model analysis replaced another; specifically, when mathematical analysis replaced verbal logical analysis. This study provides a case study to the first category of Mary Morgan’s two functions of economic Modeling: Models as an object to inquire into and Models as an object with which to inquire.
Michael Emmett Brady - One of the best experts on this subject based on the ideXlab platform.
-
On Keynes’s Painstaking Slow Instruction of Harrod on the Technical Aspects of His IS-LM Model in July-September, 1935:Harrod Only Finally Understood Keynes’s IS-LM Model After He Had Read the Postscript to Keynes’s Letter of August 27th, 1935 to Har
SSRN Electronic Journal, 2020Co-Authors: Michael Emmett BradyAbstract:Keynes spent a tremendous amount of time and energy attempting to tutor Harrod on the mechanics of his IS-LM Model between July to September, 1935. Keynes’s painstaking slow attempts finally led Keynes in desperation to write a three point postscript to his letter of August, 1935, that is written at a grammar school level of exposition. Only after reading Keynes’s three point postscript, written at a grammar school level of exposition, did Harrod finally grasp the point that Keynes was making, which is that it is impossible for there to be any equilibrium in Aggregate (Effective) Demand, Y, interest rate, r, space of Investment(I) and Savings(S) because the IS curve was a SINGLE, downward sloping line in (Y,r) space. There is ,obviously, a missing equation. Harrod’s continual resort to ceteris paribus assumptions about a constant or fixed level of aggregate income ,Y, in order to support the existing classical (neoclassical ) theory of the rate of interest in (r;I,S ) space, is very similar to Pigou’s assumption of ceteris paribus in his 1933 The Theory of Unemployment, so that he could apply his Marshallian apparatus of partial equilibrium. Keynes’s main point in the appendix to Chapter 19 of his General Theory (1936) was that Pigou had no IS-LM Model. The critical problem is that Harrod, starting with his January,1937 Econometrica article, sought to cover up Keynes’s IS-LM Model, just as he attempted to cover up Keynes’s multiplier – accelerator Model provided by Keynes to Harrod in correspondence in August,1938. The unanimous belief among economists that Hicks was the inventor of the IS-LM Model in his April, 1937 Econometrica article is simply a myth that is easily falsified by any economist who reads the correspondence of August 27th and August 30th, 1935 between Harrod and Keynes.
-
J M Keynes’s IS-LM Model in Chapter 21 in Part IV of the General Theory on Pages 298–299: Some Examples of Cognitive Dissonance Among Economists Attempting to Deal With Keynes’s Innovation in 1936 in 2018–2019
SSRN Electronic Journal, 2020Co-Authors: Michael Emmett BradyAbstract:No macroeconomist in the 20th or 21st century has been able to deal effectively with Keynes’s original work done on his IS-LM Model that he carried out between December ,1933 and February ,1936,where the final version appeared in the General Theory or in his deployment of that Model in his reply to Jacob Viner in his February,1937 Quarterly Journal of Economics article. The major impediment to the grasping and understanding of Keynes’s IS-LM Model for economists appears to be the claim, made by the astonishingly mathematically illiterate economist ,Joan Robinson, about having collaborated with Keynes on the writing of the General Theory. This belief is easily demonstrated to be false for any economist who reads pages 134-148 of Volume 14 of the Collected Writings of John Maynard Keynes, where Keynes, in letters to J. Robinson, categorizes Joan Robinson’s understanding of his liquidity preference theory of the rate of interest as being ”nonsense”. These important pages of correspondence , especially the letters from Keynes to J. Robinson of November 4th,November 8th ,and November 9th, 1936,completely demolish any claims made by J. Robinson about assisting Keynes or collaborating with Keynes or helping Keynes in the writing of the General Theory .Keynes’s mention of help received from J. Robinson in his Preface to the General Theory was clearly withdrawn in these exchanges between September,1936 and November ,1936. What Keynes discovered in this correspondence in 1936 was that J. Robinson was completely ignorant of the basic concepts used by him in the construction of his liquidity preference theory of the rate of interest in chapters 13,14,15,16,17 and 21 of the General Theory. J. Robinson’s comments on Keynes’s General Theory relied completely on her being coached, assisted and supported by her husband ,Austin Robinson, and her lover,Richard Kahn.There are a number of similarities between Joan Robinson and Elizabeth Holmes ,who was able to successfully escape being exposed as an intellectual fraud from 2003-2018.Joan Robinson continues to be accepted as a researcher who worked closely with Keynes,despite massive evidence to the contrary. Joan Robinson claimed in 1962 that the IS-LM Model was the work of Bastard Keynesians ,who did not understand what Keynes was doing in his analysis in the General Theory. It is Joan Robinson, and not the Bastard Keynesians, who ,unfortunately, only got it half right, who did not understand what Keynes was doing in both the General Theory and the 1937 Quarterly Journal of Economics article. The continuing impact of Joan Robinson in misleading the entire economics profession for 84 years can be traced simply by examining the recent literature written about the General Theory and /or the IS-LM Model. Keynes’s total contribution in the General Theory in 1936, which was the IS-LM Model ,combined with the D-Z Model that incorporated expectations and uncertainty, will never be recovered until the many myths made up about Keynes by J. Robinson are finally removed from the literature on Keynes.
-
It Is Not Possible to Fix the Misleading Analysis Contained in the History of Economic Thought Website of the Hicks -Hansen Version of the IS-LM Model If One Is Seeking to Grasp Keynes’s Own, Actual IS-LM Model Presented in Chapter 21 in Part IV on p
SSRN Electronic Journal, 2020Co-Authors: Michael Emmett BradyAbstract:Keynes’s IS-LM Model in the General Theory, defined in (r,Y) space and contained in chapter 21 in Part IV on pp. 298-299 of the General Theory, was derived from the underlying D-Z Model of Chapter 20 that incorporated expectations and uncertainty into the P(expected economic profits-Z) and p(expected economic prices-D)terms. Keynes explicitly derived Y from his Aggregate Supply Curve (ASC) analysis, which presented a locus of all possible expected D-Z intersections. The derivation of the ASC occurs two times in the General Theory. The first derivation is contained in ft. 2 of pp. 55-56 of the General Theory. The second derivation occurs in chapter 20 on p.283 in fts. 1 and 2 of the General Theory. Keynes then integrates the liquidity preference function formally into the D-Z Model of chapter 20 on pp. 304-306 of chapter 21. Y is not derived from the IS curve a la Hicks, but from the D-Z Model that incorporated long run concerns about future expected profits and the uncertainty of such profit.. Keynes then combined r, the nominal rate of interest, with the actual value of a particular D value that is actually realized, which is Y, where Y is nominal, actual, effective aggregate demand. The Harrod-Hicks-Lange-Modigliani -Hansen versions of IS-LM had no foundation in expectations and uncertainty, as they were based on perfect competition and risk. Only Champernowne, using an equivalent exposition to Keynes’s as presented in chapters 20 and 21 of the General Theory, combined and integrated expectations and uncertainty variables into his RES paper Model by defining Q and Q’ variables, which were contained only in the three diagram-three equation Keynes Model, but not in the three diagram-three equation neoclassical Model. Champernowne correctly showed that if the Q and Q’ variables are removed from Keynes’s Model, then one obtains the classical (neoclassical) Model. For example, in the labor market, if Q and Q’ are present in the functions, then the first order condition for optimality becomes the marginal product of labor equals the EXPECTED real wage. If, on the other hand, there is no uncertainty about the future, then the first order condition for optimality becomes the neoclassical marginal product of labor equals the ACTUAL real wage. Therefore, if there is no uncertainty about future prices and profits, then chapter 20 of the General Theory drops out of consideration, since chapter 20 is Keynes’s more advanced mathematical Modelling that Champernowne’s Model provides in graphical form, which was based on Keynes’s original 1933 Model, where Keynes used W=the state of the news to designate the impact of uncertainty about future levels of prices and profits on employment levels. Champernowne’s Q and Q’ variables are equivalent to Keynes’s early W variable, which Keynes replaced with uncertainty in the General Theory, where uncertainty was defined by Keynes as an inverse function of the evidential weight of the argument, V, where V=V(a/h) =w, where w is the weight of the evidence, from chapters 6 and 26 of Keynes’s A Treatise on Probabilit. Thus, Keynes’s W represented the change in w over time. If w increases, so that W represents an increase in positive evidence, then nervousness and uncertainty decreases. If w decreases, so that W represents a decrease in positive evidence and increase in negative evidence, then nervousness and uncertainty increase. The only IS-LM Model that is consistent with Keynes’s chapter 21 Model is Champernowne’s. Meade, while dealing with expectations, did not explicitly introduce uncertainty as done by Champernowne with his Q and Q’ variables. Thus, involuntary unemployment for Keynes and monetary unemployment for Champernowne have nothing to do with rigid or fixed money wages, as claimed by Hicks, Harrod, Lange, and Modigliani, but are due to the presence of uncertainty. The Harrod, Hicks, Lange and Modigliani Models are mis-specified because they do not incorporate any possibility for uncertainty to exist.
-
J M Keynes’s 1937 Refutation of the Claim That Hicks–Hansen (and Others) Saved Keynes’s General Theory by the Development of the IS-LM Model in His ‘Professor Pigou on Money Wage Rates in Relation to Unemployment’
SSRN Electronic Journal, 2018Co-Authors: Michael Emmett BradyAbstract:The myth or story regarding the creation of the IS-LM Model in the economics profession goes something like this. Keynes correctly showed in the General Theory that you could not specify the rate of interest just from the supply of savings and demand for investment schedules alone because this only provided an IS curve. However, Keynes erred in claiming that it was the demand and supply of money that determined the rate of interest. This meant that Keynes was arguing that the LM curve alone determined the rate of interest. Thus, Hicks, Harrod, Meade, Champernowne, Reddaway, etc., saved Keynes from error by combining the IS and LM curves together to provide a consistent and coherent theory of the rate of interest. A more sophisticated version of this myth is that, while Keynes himself did derive and specify the IS-LM Model in his student lectures in December, 1933, and included them in the 1934 draft copy of the General Theory, he refused to present this formal Model in the General Theory because he was a follower of Marshall’s dictum that required a writer to burn the mathematics after he had used it to confirm the accuracy of the literary analysis. Various additional claims in this version of the myth were that Keynes was an anti-formalist or had an anti-mathematical or anti-quantificationist streak in him that resulted in his not presenting any formal Model of his theory in the General Theory. Both of these stories were destroyed by Keynes himself in the draft copy of his 1937 paper, titled “Professor Pigou on money wage rates in relation to unemployment.” The perpetuation of this myth for over 80 years, combined with the perpetuation of the myth of Adam Smith’s Invisible Hand, exposed repeatedly by G. Kennedy, could lead citizens to question whether economics is even a weak or inexact science. Science and myths can never coexist together if a field of study is truly scientific. Keynes originated, created developed, applied and taught the IS-LP(LM) Model starting in December, 1933. Sections IV of both chapters 15 and 21 contained Keynes’s theory and applications, as well as astute criticisms of his own theoretical work. The myth that there was no IS-LM Model in the GT is an anti- scientific claim that directly conflicts with the scientific claims made by the economics profession. The sooner this myth is put to rest, the better it will be in the long run for all economists.
-
On J M Keynes's Correspondence about His General Theory IS-LM Model with Harrod and Hicks on Their Interpretations of His IS-LM Model: Keynes Had No Major Objections Because IS-LM Was Created, Developed and Applied by Keynes in the General Theory in
SSRN Electronic Journal, 2017Co-Authors: Michael Emmett BradyAbstract:J M Keynes engaged in correspondence over the IS-LM Model contained in chapter 15 of the General Theory with R. Harrod and J Hicks in 1937. Keynes had no major objections. How could he? How could Keynes object to interpretations concerning his own Model of IS LM in the General Theory, as laid out by Keynes explicitly in chapter 15 of the General Theory? However, he did point out two relative deficiencies that needed to be fixed in his IS LM Model. These deficiencies were fixed by Keynes within the broader framework of his Theory of Effective Demand, presented in the General Theory in chapters 3, 20, 21 and the appendix to chapter 19. The first deficiency was the lack of any microeconomic foundations in the theory of the firm for the IS curve. The second deficiency was that the IS curve had no explicit foundation in expectations concerning future prices and future economic profits. Keynes remedied both of these relative deficiencies in chapters 20 and 21 where he presented a detailed mathematical analysis incorporating a microeconomic foundation based on the theory of purely competitive firms. He explicitly incorporated variables, p for expected price, and P for expected economic profits, into his analysis. Keynes worked in wage units. Thus, pw and Pw appeared explicitly in the analysis in chapters 20 and 21.
Mario Sportelli - One of the best experts on this subject based on the ideXlab platform.
-
A dynamic IS-LM Model with two time delays in the public sector
Applied Mathematics and Computation, 2014Co-Authors: Mario Sportelli, Luigi De Cesare, Maria T. BinettiAbstract:Some recent contributions to Economic Dynamics have shown an increasing interest on the impact that fiscal policy lags may have on the income adjustment processes. Lags dealing with fiscal policy come from delays either in the government expenditure or in the tax revenues. These two lags yield jointly their macroeconomic effects. They are such that to make traditional fiscal policy rules ineffectual to control, and stabilize the GDP dynamics. Here we study a dynamic IS-LM Model where the public expenditure and the tax revenues have a delayed functional form. We show that the equilibrium of the system may lose or gain its local stability depending either on the length of the lags or on their particular combinations. When instability arises, very complicated dynamics may characterize the national income time path.
-
A dynamic IS-LM Model with delayed taxation revenues
Chaos Solitons & Fractals, 2005Co-Authors: Luigi De Cesare, Mario SportelliAbstract:Abstract Some recent contributions to Economic Dynamics have shown a new interest for delay differential equations. In line with these approaches, we re-proposed the problem of the existence of a finite lag between the accrual and the payment of taxes in a framework where never this type of lag has been considered: the well known IS-LM Model. The qualitative study of the system of functional (delay) differential equations shows that the finite lag may give rise to a wide variety of dynamic behaviours. Specifically, varying the length of the lag and applying the “stability switch criteria”, we prove that the equilibrium point may lose or gain its local stability, so that a sequence of alternated stability/instability regions can be observed if some conditions hold. An important scenario arising from the analysis is the existence of limit cycles generated by sub-critical and supercritical Hopf bifurcations. As numerical simulations confirm, if multiple cycles exist, the so called “crater bifurcation” can also be detected. Economic considerations about a stylized policy analysis stand by qualitative and numerical results in the paper.
Beatrice Venturi - One of the best experts on this subject based on the ideXlab platform.
-
Kaldorian Assumptions and Endogenous Fluctuations in the Dynamic Fixed-Price IS-LM Model
New Economic Windows, 2014Co-Authors: Giovanni Bella, Paolo Mattana, Beatrice VenturiAbstract:With the aim of better understanding the conditions which determine endogenous fluctuations at business cycle frequencies, recent literature has revived interest in the Schinasi’s variant of the dynamic, intermediate-run, IS-LM Model (Schinasi 1981, 1982). Results, however, remain confined to Kaldorian-type economies, namely to those economies which present a greater-than-unity marginal propensity to spend out of income. This paper contributes to the debate by showing that, in the case of a negative interest rate sensitivity of savings, stable endogenous cycles can actually emerge as equilibrium solutions of the Model also in the case of non Kaldorian-type economies. To this end, we combine the instruments of the global analysis, specifically the homoclinic bifurcation Theorem of Kopell and Howard (1975), with numerical methods.
-
Some Notes on the Structure of Limit Sets in IS-LM Models
Procedia - Social and Behavioral Sciences, 2014Co-Authors: Giovanni Bella, Paolo Mattana, Beatrice VenturiAbstract:Abstract We analyze the global dynamics of the solutions of a general non-linear fixed-price disequilibrium IS-LM Model, where the investment function avoids any Kaldor-type assumption. The structure of the limit sets of the Model with a third order non linearity is studied. We use rigorous arguments to show that, as the bifurcation parameters vary, a wide range of dynamical behavior is displayed.
-
Kaldorian assumptions and endogenous fluctuations: a note on Schinasi’s IS–LM Model
International Review of Economics, 2013Co-Authors: Giovanni Bella, Paolo Mattana, Beatrice VenturiAbstract:Results on Schinasi’s (Rev Econ Stud 48:649–653, 1981 ; J Econ Theory 28:369–375, 1982 ) variant of the dynamic fixed-price IS–LM Model have remained so far confined to Kaldorian type economies, namely to those economies which present a greater-than-unity marginal propensity to spend out of income. This paper shows that, in the case of a negative interest rate sensitivity of savings, stable endogenous cycles can actually emerge as equilibrium solutions of the Model also in the case of non-Kaldorian type economies.
-
The double scroll chaotic attractor in the dynamics of a fixed-price IS-LM Model
International Journal of Mathematical Modelling and Numerical Optimisation, 2013Co-Authors: Giovanni Bella, Paolo Mattana, Beatrice VenturiAbstract:With the aim of exploring the conditions which determine a chaotic behavior in the long-run properties of an economic Model, this paper innovates the existing Keynesian macroeconomic literature by showing that the dynamics of the well-known IS-LM Model may generate a double-scroll strange attractor, for a particular set of structural parameters.
Robert G. King - One of the best experts on this subject based on the ideXlab platform.
-
The New IS-LM Model: Language, Logic, and Limits
2000Co-Authors: Robert G. KingAbstract:Recent years have witnessed the development of a New IS-LM Model that is increasingly being used to discuss the determination of macroeconomic activity and the design of monetary policy rules. It is sometimes called an “optimizing IS-LM Model” because it can be built up from microfoundations. It is alternatively called an “expectational IS-LM Model” because the traditional Model’s behavioral equations are modified to include expectational terms suggested by these microfoundations and because the new framework is analyzed using rational expectations. The purpose of this article is to provide a simple exposition of the New IS-LM Model and to discuss how it leads to strong conclusions about monetary policy in four important areas. • Desirability of price level or inflation targeting: The new Model suggests that a monetary policy that targets inflation at a low level will keep economic activity near capacity. If there are no exogenous “inflation shocks,” then full stabilization of the price level will also maintain output at its capacity level. More generally, the new Model indicates that time-varying inflation targets should not respond to many economic disturbances, including shocks to productivity, aggregate demand, and the demand for money. • Interest rate behavior under inflation targeting: The new Model incorporates the twin principles of interest rate determination, originally developed by Irving Fisher, which are an essential component of modern macroeconomics. The real interest rate is a key intertemporal relative
-
Will the New Keynesian Macroeconomics Resurrect the IS-LM Model?
Journal of Economic Perspectives, 1993Co-Authors: Robert G. KingAbstract:The IS-LM Model has no greater prospect of being a viable analytical vehicle for macroeconomics in the 1990s than the Ford Pinto has of being a sporty, reliable car for the 1990s. Because of its treatment of expectations, the IS-LM Model, as traditionally constructed and currently used, is a hazardous base on which to build positive theories of business fluctuations and to undertake policy analysis. To simplify economic reality sufficiently to use the IS-LM Model as an analytical tool, economists must essentially ignore expectations; we now know that this simplification eliminates key determinants of aggregate demand. The last two decades of research have taught economists that the assumption of rational expectations is a powerful part of economic explanations of individual and market behavior, ranging from consumption and investment dynamics to pricing of stocks and bonds. The emphasis on expectations in the macro-Model is the end result of a process of building microeconomic underpinnings that was initiated in the 1950s and 1960s, when the goal was to develop dynamic theoretical foundations for the IS and LM schedules; inevitably, consideration of dynamic choice pushed the question of expectations to the forefront. As a result, most of the equations of the IS-LM Model are now viewed as summarizing purposeful economic behavior in which choices over time play a central role. However, as we will see, this finding means there is no way to maintain traditional uses of the IS-LM Model.
