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The Diamond of Macroeconomic Equilibria and Non-Inflationary Expansion

Citation

McDonald, IM and Sibly, HA, The Diamond of Macroeconomic Equilibria and Non-Inflationary Expansion, Metroeconomica, 56, (3) pp. 393-409. ISSN 0026-1386 (2005) [Refereed Article]

DOI: doi:10.1111/j.1467-999X.2005.00222.x

Abstract

This paper combines the microeconomic foundations of earlier models of a range of equilibrium rates of employment to generate a model with a diamond of equilibria. Analysis of the diamond model shows that for a depressed economy an expansionary aggregate demand policy can, without violating rational expectations of inflation, generate a central proposition of Keynesian economicsâ€"a non-inflationary expansion (NIE), that is a permanent increase in employment without increasing inflation. The microeconomic foundations of the model draw on ideas of customer markets, reference dependence and loss aversion. It is also shown that the possibility of achieving an NIE is enhanced if a macro price policy, such as incomes policy or inflation targeting, accompanies the expansion in aggregate demand. © 2017 Wiley. All rights reserved.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Economic Theory
Research Field:Macroeconomic Theory
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
Author:Sibly, HA (Dr Hugh Sibly)
ID Code:35395
Year Published:2005
Deposited By:Economics and Finance
Deposited On:2005-08-01
Last Modified:2006-05-05
Downloads:0

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