Macro7The IS - LM Model宏观经济学(南开大学,龚刚)

MacroeconomicsLecture7TheIS-LMModelI.IntroductionTheobjectiveintegratethepreviouslydiscussedtwomodels:•themodelsforproductmarket,and•themodelformoneymarketanddiscusshowoutputandinterestratearedetermined.I.IntroductionWhyIS-LMThemodelpresentedinthislectureisoftencalledtheIS-LMmodelIS:meaningsavingandinvestment,representingtheequilibriuminproductmarket.LM:meaningliquidityandmoney,representingtheequilibriuminthemoneymarket.II.InvestmentDeterminationWhyNeedInvestment?InLecture5,wehaveassumedthatinvestmentisautonomousandissimplygiven.Foracompletemodelofoutputdetermination,weneedtodiscusshowinvestmentisdetermined.Itisalsoinvestmentthatconnectsthemodelofproductandthemodelofmoneymarket.II.InvestmentDeterminationTheinvestmentdeterminationThisisoneofthemostcomplicatedissueinmacroeconomics.Empirically,theinvestmentfunctionisthemostdifficultonetobeestimated.II.InvestmentDeterminationTheinvestmentdetermination(continued)Youcanlistasmanyaspossiblefactorsthatcouldaffectinvestment:•Technicalprogress•Expectedmarketconditioninthefuture•Financialresource•Governmentpolicy•InvestmentenvironmentII.InvestmentDeterminationInvestmentandinterestrateThereisnodoubtthatinvestmentshoulddependoninterestrate.Ifinterestrateincrease,investmentshoulddecrease.ThiscanbeconsideredfromthefollowingfigureregardingtherateofreturnsonthevariousinvestmentprojectsII.InvestmentDeterminationInvestmentandinterestrate(continued)II.InvestmentDeterminationInvestmentfunctionI=f(i,…)where.Seethefigureinthenextpage./0fiII.InvestmentDeterminationInvestmentfunction(continued)II.InvestmentDeterminationRemarksontheinterestrateItisbettertounderstandtheinterestrateintheinvestmentfunctionheretobetheloaninterestrate.Thisisdifferentfromtheinterestrateasdiscussedinthelastlecture,thebondinterestrate.II.InvestmentDeterminationRemarksontheinterestrate(continued)Therecanbemanyinterestratesintherealworld•Bondinterestrate•Loaninterestrate(primerate)•Discountfactor•FederalfundrateII.InvestmentDeterminationRemarksontheinterestrate(continued)Basicassumption:samevariation(orlinearlyrelated)thoughdifferentinvaluesTherefore,wecouldassumeasingleinterestratetosimplifyouranalysisinmacroeconomics.III.TheEquilibriumintheProductandMoneyMarketsTheequilibriumconditioninproductmarketTheIScurveTherelationbetweenYandiisnegativeintheIScurve(seethefigureinthenextpage)1[()]1(1)YAfiGcIII.TheEquilibriumintheProductandMoneyMarketsTheequilibriumconditioninproductmarket(continued)III.TheEquilibriumintheProductandMoneyMarketsTheequilibriumconditioninmoneymarketLMcurveTherelationbetweenYandiintheLMcurveispositive.MhPYkiTheequilibriumconditioninmoneymarket(continued)III.TheEquilibriumintheProductandMoneyMarketsIII.TheEquilibriumintheProductandMoneyMarketsTheEquilibriumintheProductandMoneyMarketsTheIS-LMModelThesolution:(Y*,i*),seethefigure.1[()]1(1)YAGficMhPYkiIII.TheEquilibriumintheProductandMoneyMarketsTheequilibriumintheproductandmoneymarkets(continued)YIV.TheDynamicalAnalysisofIS-LMModelDeterminationofYandiintheIS-LMrelationsIntheISrelation:YisdeterminedbyiIntheLMrelation:iisdeterminedbyY.IV.TheDynamicalAnalysisofIS-LMModelDynamics11()ttYISi1()ttiLMYIV.TheDynamicalAnalysisofIS-LMModelDynamics1(continued)IV.TheDynamicalAnalysisofIS-LMModelDynamics2indicatingonlyonevariabletobeallowedtochangewithinoneperiod.11(,)((),)ttttYiISii11(,)(,())ttttYiYLMYIV.TheDynamicalAnalysisofIS-LMModelDynamics2(continued)IV.TheDynamicalAnalysisofIS-LMModelDynamics31()ttYISi)(ttYLMi))((1ttiISLMi1()ttiFiIV.TheDynamicalAnalysisofIS-LMModelDynamics3(continued)IV.TheDynamicalAnalysisofIS-LMModelDynamics3(continued)IV.TheDynamicalAnalysisofIS-LMModelDynamics3(continued)IV.TheDynamicalAnalysisofIS-LMModelWhyImportant?Allthesedifferentdynamicsseemstoexpressoneofthestylistfactorsofaneconomy:thebusinesscyclesphenomena.V.ChangeinEquilibriumTheEquilibriumcouldbechangedduetothechangesintheparameters:c,,handktheexogenousvariables,A,Gandthefunctionalformoff(.).MV.ChangeinEquilibriumChangeingovernmentexpenditureConsiderachange(increase)inG,denotedasG.ShifttheIScurvetotherightIsthechangeinGDP,denotedasYstillsatisfythemultiplierrelation?GtcY)1(11IV.ChangeinEquilibriumChangeingovernmentexpenditure(continued)IV.ChangeinEquilibriumChangeingovernmentexpenditure(continued)Ofcoursetheanswerisno,thoughYstillincreases.Theoverallconsequence:•Interestrateincrease•Investmentdecrease(crowdingouteffect)•OutputYincrease.IV.ChangeinEquilibriumChangeinmoneysupplyConsiderachange(increase)inmoneysupply.ShiftLMcurvetotherightIV.ChangeinEquilibriumChangeinmoneysupply(continued)IV.ChangeinEquilibriumChangeinmoneysupply(continued)Theoverallconsequence•Interestratedecrease•Investmentincrease•OutputYincreaseIV.ChangeinEquilibriumChangeinmoneysupply(continued)MonetaryTransmissionMechanism:Theprocessbywhichthechangeinmoneysupplyinfluencetheeconomy.Pleasedescribethisprocessasdetailaspossible.