Lecture Five: Some Typically Keynesian Exercises in Open-economy Modelling
In classical or neoclassical models of the open economy, flows of goods and funds across frontiers are modulated by terms-of-trade effects and by differences in nominal and real interest rates. There is surely no formal classical treatment of effects of changes in Economy E’s aggregate income and output on its balance of payments. The burden of adjustment is borne by prices, not quantities. Purely Keynesian models invert the analysis: the adjustment-burden is borne by changes in aggregate income and output: price-adjustment may even be ignored.
KeywordsInterest Rate Fiscal Policy Real Interest Rate Public Spending Trade Balance
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Notes and References
- 1.The concept of asymptotic stability is appropriate to physical, but not to economic, systems. The parameters of economic systems are thus in ceaseless flux; and policy-intervention ceaselessly revises programmes relative to ceaselessly-changing objectives.Google Scholar