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Monetary Policy With Constant Real Stock Of Bonds

Author

Listed:
  • Ana ANDREI

    (Department of Economic Informatics and Cybernetics, The Bucharest Academy of Economic Studies, Romania)

  • Angela GALUPA

    (Department of Economic Informatics and Cybernetics, The Bucharest Academy of Economic Studies, Romania)

  • Armenia ANDRONICEANU

    (Department of Administration and Public Management)

  • Irina Alexandra GEORGESCU

    (Department of Economic Informatics and Cybernetics, The Bucharest Academy of Economic Studies, Romania)

Abstract

The equilibrium growth path stated in this paper is based on the IS-LM- SRAS model augmented with the dynamics of expected inflation and real wealth, developed by Sidrauski and Turnovski . In our previous papers, we computed the IS-LM equilibrium for the linear model and defined the dynamic system. In this work, we estimated the parameters using statistical data for Romania during 2001Q2-2014Q2 and computed the multipliers. These parameters and multipliers were further used to compute the coefficients of the two dimensional dynamic system. We further augmented the dynamic system, with an objective function, reflecting the sum of the square differences of the real actual government expenditures, from the values established by fiscal policy. We applied the Pontryagin’s Principle in order to compute the optimal conditions of the optimal control problem. The overall dynamics of the economy is computed for short run, considering the monetary policy of constant stock of bound, using Runge-Kutta algorithm in MATLAB. The dynamics of the system was analyzed via phase diagram. The results reflect the fact that the economy is in an unstable zone, with expected inflation decreasing and real wealth increasing, fact that determines us to add an objective function for minimizing the square differences of the government expenditures from the stationary ones during 2016Q1-2017Q4.

Suggested Citation

  • Ana ANDREI & Angela GALUPA & Armenia ANDRONICEANU & Irina Alexandra GEORGESCU, 2016. "Monetary Policy With Constant Real Stock Of Bonds," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(3), pages 101-116.
  • Handle: RePEc:cys:ecocyb:v:50:y:2016:i:3:p:101-116
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    References listed on IDEAS

    as
    1. Casares, Miguel & McCallum, Bennett T., 2006. "An optimizing IS-LM framework with endogenous investment," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 621-644, December.
    2. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-143, March.
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    Cited by:

    1. Celia Dana BESCIU & Armenia ANDRONICEANU, 2017. "The Impact of Health Indicators on Economic Development and Social Wealth," Book chapters-LUMEN Proceedings, in: Camelia Ignatescu & Antonio SANDU & Tomita CIULEI (ed.), Rethinking Social Action. Core Values in Practice, edition 1, volume 1, chapter 9, pages 92-102, Editura Lumen.
    2. Armenia ANDRONICEANU & Cristina Raluca POPESCU, 2017. "An Inclusive Model for an Effective Development of the Renewable Energies Public Sector," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2017(28), pages 81-96, June.

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    More about this item

    Keywords

    IS-LM-SRAS equilibrium; monetary policy; Phillips curve; optimal control; Pontryagin’s Principle; phase diagram; Matlab; Runge-Kutta algorithm.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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