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Macroeconomic Stability with a Positively Sloped IS Curve: A Further Examination

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  • Cebula, Richard

Abstract

The Modigliani stability condition states that the slope of the LM curve must be algebraically greater than that of the IS curve for economic stability to occur. This paper mathematically demonstrates that this theorem's validity does not necessarily guarantee stability for the macroeconomic system if the aggregate price level is a variable. Thus, the Modigliani stability condition may not be generalized beyond the scope of a crude IS-LM model having only income and the interest rate as endogenous.

Suggested Citation

  • Cebula, Richard, 1973. "Macroeconomic Stability with a Positively Sloped IS Curve: A Further Examination," MPRA Paper 54575, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:54575
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    File URL: https://mpra.ub.uni-muenchen.de/54575/1/MPRA_paper_54575.pdf
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    References listed on IDEAS

    as
    1. Silber, William L, 1971. "Monetary Policy Effectiveness: The Case of a Positively Sloped IS Curve," Journal of Finance, American Finance Association, vol. 26(5), pages 1077-1082, December.
    2. James Quirk & Richard Ruppert, 1965. "Qualitative Economics and the Stability of Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(4), pages 311-326.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    macroeconomic stability; IS-LM stability; variable price level;
    All these keywords.

    JEL classification:

    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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