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The Macroeconomics of Imperfect Capital Markets: Whither Saving-Investment Imbalances?

  • Roberto Tamborini
Chapter
Part of the Contributions to Economics book series (CE)

Abstract

Starting with Wicksell and until the heyday of Keynesian economics, inflation, unemployment and business cycles were thought and taught mainly as problems originating from “saving-investment imbalances” due to some form of malfunctioning of the capital market. Whereas modern studies of imperfect capital markets have greatly improved our understanding of capital market failures, their impact on macroeconomics has remained surprisingly limited. The macroeconomic consequences of saving-investment imbalances are still undeveloped in this literature. The most popular macroeconomic model to date – the so-called New Neoclassical Synthesis – dispenses with capital market imperfections altogether. The aim of this paper is to fill this gap. After an overview of the historical foundations and the current state of the macroeconomics of imperfect capital markets, the paper presents a competitive, flex-price model of saving-investment imbalances where deviations of the market interest rate from the Wicksellian natural rate generate (disequilibrium) business cycles. Then the model is extended to make the market interest rate endogenous and to allow preliminary considerations to be made about monetary policy and the control of the interest rate over the business cycle.

Keywords

Interest Rate Monetary Policy Capital Market Central Bank Real Interest Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgements

I wish to thank Axel Leijonhufvud, Vela Velupillai, Edoardo Gaffeo, Andrea Fracasso, Ronny Mazzocchi and Hans Michael Trautwein for helpful discussions and comments. Financial support is acknowledged to the Italy-Germany Inter-Univeristy “Vigoni Programme,” 2006–2007.

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Copyright information

© Springer Physica-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of TrentoTrentoItaly

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