An application: Pension systems and transitions

Vîntu, Denis (2022): An application: Pension systems and transitions.

Abstract

The classical IS-LM model does not have inflation and inflation expectation in it; it is exogenous. The LM curve shifts as the price level changes and subsequently the real money supply changes assuming the money stock stays the same. The decreasing interest rate pressure on the private sector translates into an accelerating rise in investments. Suppose an economy is at unemployment equilibrium. Inflation is stable so the central bank has no price-caused reason to intervene. To stimulate the economy, the central bank cuts (nominal) interest rate horizon. One type frequently discussed is when expansionary fiscal policy reduces investment spending by the private sector. The government spending is "crowding out" investment because it is demanding more loanable funds and thus causing increased interest rates and therefore reducing investment spending. This basic analysis has been broadened to multiple channels that might leave total output little changed or even smaller. As Keynesian economics, the Phillips curve provided a menu of tradeoffs for policy-makers: They could use demand management policies to increase output and decrease unemployment, but this could only be done at the expense of higher inflation. Keywords: IS-LM model; dynamic general equilibrium (DGE); Monetary Policy, Policy Design and Consistency; discrete regression; prices; econometric methods

• Item Type: MPRA Paper
• Language: English
• Keywords: IS-LM model; dynamic general equilibrium (DGE); Monetary Policy, Policy Design and Consistency; discrete regression; prices; econometric methods
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

References

Auerbach, A. J. & Kotlikoff, L. J. (1987). Evaluating fiscal policy with a dynamic simulation model. TheAmerican Economic Review, 77(2), 49–55.

Azariadis, C. (1993). Intertemporal macroeconomics.

Bernheim, B. D., Skinner, J., & Weinberg, S. (2001). What accounts for the variation in retirementwealth among U.S. households? American Economic Review, 91(4), 832–857.

Beshears, J., Choi, J. J., Laibson, D., & Madrian, B. C. (2018). Behavioral household finance. Handbookof behavioral economics: Applications and foundations 1 (pp. 177–276). Elsevier.

Feldstein, M. & Bacchetta, P. (1991). National saving and international investment. National savingand economic performance (pp. 201–226). University of Chicago Press.

Ji-Taek SEO, Hajime INAMURA and Asao ANDO (Economic Effects of Tax Reform in an Overlapping-Generations Model

Kaplan, G., Violante, G. L., & Weidner, J. (2014). The wealthy hand-to-mouth. (tech. rep.). NationalBureau of Economic Research.

Ljungqvist, L. & Sargent, T. J. (2018). Recursive macroeconomic theory. MIT Press.

Madrian, B. C. & Shea, D. F. (2001). The power of suggestion: Inertia in 401 (k) participation andsavings behavior. The Quarterly Journal of Economics, 116(4), 1149–1187.

Romer, P.M. (1990), Endogenous technological change. Journal of Political Economy, Vol. 98, S71-S102.

Romer, P.M. (1986), Increasing returns and long-run growth. Journal of Political Economy, Vol. 94, pp. 1002-37.

Sala-i-Martin, X. (2002), The distributing “rise” of global income inequality. NBER Working Paper w8904.

Solow, R. (1956), A contribution to the theory of economic growth. Quart. J. Econ., vol. 70, No. 1, pp. 65-94.

Scholz, J. K., Seshadri, A., & Khitatrakun, S. (2006). Are Americans saving “optimally” forretirement?Journal of Political Economy, 114(4), 607–643.

Srinivasan, T.N. (2004), Moldova and India: economic performance, competition and cooperation: an update. Journal of Asian Economics, Vol. 15, pp. 613- 636.

Veloso, F. and Soto, J.M. (2001). Incentives, infrastructure and institutions: Perspectives on industrialization and technical change in late-developing nations. Technological Forecasting and Social Change, Vol. 66, pp. 87-109.

Verspagen, B. (2000). Growth and structural change: Trends, patterns and policy options. Paper prepared for the conference on “Wachstums- und Innovationspolitik in Deutschland und Europa. Probleme, Reformoptionen und Strategien zu Beginn des 21. Jahrhunderts”, Potsdam, 14 April 2000. First draft, April 2000.

Wade, R.H. (2004). Is globalization reducing poverty and inequality? World Development, Vol. 32, pp. 567-589.