The Classical Stationary State

Pigou, A. C.

doi:10.2307/2226394

Cited by 271 publications

(97 citation statements)

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“…These results show that a real balance effect of the kind described by de Scitovszky (1941), Haberler (1946), Pigou (1943), and Patinkin (1965) fails to appear in Krugman's and Svensson's models because these models, which feature a single infinitely lived representative agent, depict economic environments in which government-issued money is not a component of aggregate private-sector wealth.…”

Section: The Welfare Costs Of Deflationmentioning

confidence: 89%

“…First discussed by de Scitovszky (1941), Haberler (1946), and Pigou (1943) and developed most extensively by Patinkin (1965), the real balance effect describes a channel through which a change in real balances, caused either by a change in the nominal money supply or by a change in the nominal price level, impacts household wealth and thereby affects consumption and output. The real balance effect allows the central bank to influence the economy even after the nominal interest rate hits its lower bound.…”

Section: Old Ideas New Modelsmentioning

confidence: 99%

“…de Scitovszky (1941), Haberler (1946), Pigou (1943), and Patinkin (1965) describe the real balance effect. According to these authors, real money balances form a component of private-sector wealth and therefore enter into the aggregate consumption function.…”

Section: The Real Balance Effectmentioning

confidence: 99%

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The Liquidity Trap, the Real Balance Effect, and the Friedman Rule

Ireland

2005

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper studies the behavior of the economy and the efficacy of monetary policy under zero nominal interest rates, using a model with population growth that nests, as a special case, a more conventional specification in which there is a single infinitely lived representative agent. The paper shows that with a growing population, monetary policy has distributional effects that give rise to a real balance effect, thereby eliminating the liquidity trap. These same distributional effects, however, can also work to make many agents much worse off under zero nominal interest rates than they are when the nominal interest rate is positive. Terms of use: Documents in EconStor may JEL Classifications: E31, E52Peter N. all of the taxes that will eventually be used to retire the government's debt. Less widely appreciated, however, is a closely related finding, presented most explicitly by Weil (1991), but also implicit in earlier work by Sachs (1983) and Cohen (1985). These authors show that government-issued fiat money will not be perceived as a source of private-sector wealth if the households owning that money are the same households that, first, receive all of the transfers or pay all of the taxes associated with future changes in the money supply and that, second, incur all of the opportunity costs associated with carrying the money stock across all future periods. In fact, Krugman's and Svensson's representative-agent models describe environments in which money is not net wealth. In these models, therefore, the real balance effect disappears. Weiss (1980( ), Freeman (1985( , 1989( , 1993, and Smith (2002) Weil's model, in which goods are received by each household in the form of a constant endowment, is also extended here by allowing each household to produce output with labor.Here, as in Wilson (1979), Cooley and Hansen (1989), Cole and Kocherlakota (1998), andIreland (2003), positive nominal interest rates distort households' labor supply decisions.Thus, the structure of production and trade gives rise to a mechanism that might make the central bank want to follow the Friedman (1969) rule, which provides for zero nominal interest rates. And, indeed, the Friedman rule is optimal in the special case where the population growth rate equals zero. When the population grows at a positive rate, however, the taxes that the government must levy to implement the Friedman rule generate distributional effects that can make zero nominal interest rates quite costly for...

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Section: The Welfare Costs Of Deflationmentioning

confidence: 89%

Section: Old Ideas New Modelsmentioning

confidence: 99%

See 1 more Smart Citation

The Liquidity Trap, the Real Balance Effect, and the Friedman Rule

Ireland

2005

SSRN Journal

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“…Que la question ait été posée sous cette forme explique pourquoi elle va interférer avec la controverse que suscitera la mise en avant par Pigou (1943) de l'effet d'encaisse réelle. Il apparaîtra alors que pour que la variation des prix laisse inchangée les demandes nettes de biens il faut que la valeur des actifs nets détenus par les agents varient comme les prix.…”

Section: Peut-on Passer D'un Raisonnement En Valeur à Un Raisonnementunclassified

La formulation du modèle keynésien et le choix de l'unité de mesure

Béraud¹

2014

Recherches Économiques De Louvain

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International audienceThis contribution analyzes how Keynes and the Keynesians asked the question of the choice of the unit of measure of the macroeconomic aggregates. Underlining the narrow relationships which exist between the lectures Keynes professed between 1933 and 1935 and the diverse versions of the model IS-LM, it shows that the problems arise from the way Keynes had approached this problem. To argue about the monetary value of the aggregates leads to dichotomize the model and does not allow to analyze correctly the interdependence between the labor market on one hand and the goods markets and the money market on the other hand. The model so formulated does not allow to treat in a rigorous way the effects of a variation of the monetary wage. It lets think, wrongly, that there is inevitably full employment equilibrium.Cet article analyse la façon dont Keynes et les keynésiens posèrent la question du choix de l'unité de mesure des agrégats macroéconomiques. Soulignant les rapports étroits qui existent entre les cours que Keynes professa entre 1933 et 1935 et les diverses versions du modèle IS-LM, il montre que les problèmes naissent de la façon dont Keynes avait abordé ce problème. Raisonner sur la valeur monétaire des agrégats conduit à dichotomiser le modèle et ne permet pas d'analyser correctement l'interdépendance entre le marché du travail d'une part et les marchés des biens et de la monnaie d'autre part. Dans le modèle ainsi formulé, il est impossible d'étudier de façon rigoureuse les effets d'une variation du salaire monétaire et l'on est conduit à penser, à tort, qu'il existe nécessairement un équilibre de plein emploi si le taux de salaire monétaire est flexible

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“…The best known of these alternatives, developed in various degrees of detail by Gottfried von Haberler (1937), Pigou (1943) and Don Patinkin (1948) among others, involves the system's properties when it is postulated that (a) the price level will fall if the level of income is below full employment, (b) the nominal supply of money is given, and (c) expenditure increases with the real purchasing power of that given nominal money supply. On these assumptions, for a given level of "animal spirits" and degree of liquidity preference, and with any possibility for expectations to respond to falling prices eliminated by assumption, the system's only equilibrium is at full employment.…”

Section: -The Success and Simplification Of Keynesian Macroeconomicsmentioning

confidence: 99%

Keynes and the birth of modern macroeconomics

Laidler¹

2006

The Cambridge Companion to Keynes

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The Classical Stationary State

Cited by 271 publications

References 0 publications

The Liquidity Trap, the Real Balance Effect, and the Friedman Rule

The Liquidity Trap, the Real Balance Effect, and the Friedman Rule

La formulation du modèle keynésien et le choix de l'unité de mesure

Keynes and the birth of modern macroeconomics

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