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The necessary condition for stability in Tobin's Walras-Keynes-Phillips model: A note

Author

Listed:
  • Subrata Guha

    (CESP, Jawaharlal Nehru University, New Delhi, India)

Abstract

In a 1975 paper entitled 'Keynesian Models of Recession and Depression' James Tobin sought to formalize in a dynamic model Keynes' argument that unemployment could persist in an economy with flexible wages and prices. In the course of his analysis Tobin presented, without proof, a 'critical necessary condition for stability' of the full employment equilibrium which is violated when expenditure is sufficiently responsive to the expected inflation rate. This note contends that later attempts in the literature to prove that Tobin's condition is necessary for stability have been unsuccessful and provides a valid proof of the same result. The note also demonstrates the existence of a sufficient condition for instability of equilibrium which is weaker than the negation of Tobin's condition.

Suggested Citation

  • Subrata Guha, 2011. "The necessary condition for stability in Tobin's Walras-Keynes-Phillips model: A note," Economics Bulletin, AccessEcon, vol. 31(1), pages 66-74.
    • Handle: RePEc:ebl:ecbull:eb-10-00688
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    References listed on IDEAS

    as
    1. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    2. McDonald, Ian M, 1980. "On the Comparison of the Stability Implications of Marshallian and Walrasian Adjustment Schemes: Note," American Economic Review, American Economic Association, vol. 70(4), pages 829-833, September.
    3. Robert E. Hall, 1975. "The Rigidity of Wages and the Persistence of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 301-350.
    4. James Tobin, 1992. "An Old Keynesian Counterattacks," Eastern Economic Journal, Eastern Economic Association, vol. 18(4), pages 387-400, Fall.
    5. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
    6. Robert W. Dimand, 2005. "Fisher, Keynes, and the Corridor of Stability," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(1), pages 185-199, January.
    7. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
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    More about this item

    Keywords

    Keynes; Tobin-Mundell effect; stability of equilibrium;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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