Financial Markets and Macroeconomic Policy in the Flow-Of-Funds Framework

Financial Markets and Macroeconomic Policy in the Flow-Of-Funds Framework

ISBN: 9781856281119
Publisher: Avebury
Edition: First Edition
Publication Date: 1991-04
Number of pages: 193
  • $38.35

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This study uses a temporary general equilibrium model constructed in the flow-of-funds framework to describe consistently the behaviour of the various sectors of an open economy. It covers a wide range of research topics related, in particular, to financial markets and monetary policy, as well as fiscal policy, incomes policy and exchange rate policy. In the fixed price version of the model, which incorporates inside money and bank loan markets, the authors are able to present a typology of macroeconomic processes and policies which is analogous to the basic IS-LM framework. Inflationary expectations are introduced into the model in the spirit of rational expectations and the range of macroeconomic measures and shocks is simultaneously widened. The introduction of open interest rate parity into the model may lead to potentially perverse effects of monetary policies. The empirical part describes the building blocks of a flow-of-funds model. Integrated flow-of-funds models describing the real expenditure and financial behaviour are specified and estimated for households and firms. A model is also built for the asset acquisitions of the banks in Finland.

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