宏观经济管理学与财务知识分析规划(英文版).pptx

CHAPTER 11Extending the Sticky-Price Model: IS-LM, International Side,and AS-AD1Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Questions What is money-market equilibrium? What is the LM curve? What determines the equilibrium level of real GDP when the central bank policy is to keep the money supply constant? What is the IS-LM framework?2Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Questions What is an IS shock? What is an LM shock? What is the relationship between shifts in the equilibrium on the IS-LM diagram and changes in the real exchange rate?3Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Questions What is the relationship between shifts in the equilibrium on the IS-LM diagram and changes in the balance of trade? What is the aggregate supply curve? What is the aggregate demand curve?4Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Demand for Money Three facts about business and household demand for moneymoney demand is proportional to total nominal income (PY)money demand has a time trend, the result of slow changes in the banking sector structure and technologymoney demand is inversely related to the nominal interest rate5Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Demand for Money Money demand is inversely related to the nominal interest rate (i=r+) because the nominal interest rate is the opportunity cost of holding moneymoney balances lose purchasing power at the rate of inflation ()if money balances were placed in some other asset, they would earn the prevailing market real interest rate (r)6Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Demand for Money To keep our model simple, we will ignore the time trend in velocity The demand for money can be expressed as Money demand is proportional to real GDP and a decreasing function of the nominal interest rate)(rVVYPMei0d7Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Money Market Equilibrium In a sticky-price model, the price level is predeterminedit cannot move instantly to make money supply equal to money demand The nominal interest rate must adjust to keep the money market in equilibriumi0seVVMP)(Y)(ri8Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.1 - Money Demand andMoney Supply9Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Money Market Equilibrium If money supply money demandbusinesses and households are holding larger money balances than they want so they deposit them at the bankbanks want to increase loans and thus respond by lowering interest ratesas the nominal interest rate falls, the quantity of money demanded risesthis process continues until the quantity of money demanded is equal to the money supply11Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The LM Curve Because the demand for money depends on the level of real GDP, if the money stock is constant, the equilibrium nominal interest rate will vary whenever real GDP varies12Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.2 - Money Demand Varies as Total Income Y Varies13Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The LM Curve The LM curve shows the relationship between the level of real GDP and the equilibrium nominal interest rate that clears the money market The LM curve slopes upwardat a higher level of real GDP, money demand is higher and therefore the equilibrium nominal interest rate is higher14Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.3 - From Money Demand to theLM Curve15Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The LM Curve The equation for the LM curve is Increases in the money supply shift the LM curve to the right A decline in the price level shifts the LM curve to the rightPM)(rVVYei016Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The IS-LM Framework As long as we know the expected inflation rate, we can plot the IS and LM curves on the same axis The equilibrium levels of real GDP and the interest rate occur at the point where the IS and LM curves intersectthe economy is in equilibrium in both the goods market and the money market17Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.4 - The IS-LM Diagram18Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.IS-LM Equilibrium Example (assume that is constant at 3%)IS curve: Y = $10,000 - $20,000rLM curve: Y = $1,000 + $100,000(r+)3)$100,000(r$1,000$20,000r-$10,000$120,000r$6,000 5%0.05rbillion $9,000Y 19Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.5 - IS-LM Equilibrium Example20Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.IS Shocks Any change in economic policy or the economic environment that increases autonomous spending shifts the IS curve to the rightthe new equilibrium will have a higher level of real GDP and a higher real interest ratehow the total effect is divided between increased interest rates and increased real GDP depends on the slope of the LM curve21Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.6 - Effect of a Positive IS Shock22Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.An IS Shock Exampleinitial IS curve: Y = $10,000 - $20,000rLM curve: Y = $1000 + $100,000(r+3)initial equilibrium: r=5%; Y = $9,000autonomous spending increasesnew IS curve: Y = $10,300 - $20,000r3)$100,000(r$1,000$20,000r-$10,3005.25%0.0525rbillion $9,250Y 23Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.7 - Calculating the Effect of anIS Shift24Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.LM Shocks An increase in the money stock will shift the LM curve to the rightthe new equilibrium position will have a higher level of equilibrium real GDP and a lower interest rate25Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.8 - Effect of an ExpansionaryLM Shock26Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.An LM Shock ExampleIS curve: Y = $10,000 - $20,000rinitial LM curve: Y=$1000+$100,000(r+3)initial equilibrium: r=5%; Y=$9,000the money supply increasesnew LM curve: Y=$2200 + $100,000(r+3)3)$100,000(r$2200$20,000r-$10,0004%0.04rbillion $9,200Y 27Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.9 - An Expansionary Shift in theLM Curve28Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Interest Rate Targets The case in which the central bank is targeting the interest rate can be viewed in the IS-LM framework An interest rate target can be seen as a flat, horizontal LM curve at the target level of the interest rate29Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.10 - IS-LM Framework with an Interest Rate Target30Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theLM Curve Any change in the nominal money stock, in the price level, or in the trend velocity of money will shift the LM curve Any change in the interest sensitivity of money demand will change the slope of the LM curve31Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theLM Curve The IS-LM diagram is drawn with the long-term, risky, real interest rate on the vertical axis The LM curve is a relationship between the short-run nominal interest rate and the level of real GDP at a fixed level of the money supply32Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theLM Curve As long as the spread between the short-term, safe, nominal interest rate and the long-term, risky, real interest rate is constant, there are no complications in drawing the LM curve onto the same diagram as the IS curve33Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theLM Curve If the expected rate of inflation, the risk premium, or the term premium between short- and long-term interest rates changes, the LM curve will shiftchanges in financial market expectations of future Federal Reserve policy, future interest rates, or changes in the risk tolerance of bond traders will shift the LM curve34Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.11 - An Increase in Expected Inflation Moves the LM Curve Downward35Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theIS Curve Shifts in the IS curve are more frequent than shifts in the LM curve Any change in the interest sensitivity of investment, the sensitivity of exports to the exchange rate, or the sensitivity of the exchange rate to the domestic interest rate will change the slope of the IS curve36Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Changes that Affect theIS Curve Anything that affects MPE will change the slope and the position of the IS curvethis includes changes in the MPC, tax rates, and the propensity to import Any change in autonomous spending will shift the IS curve37Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The IS-LM Framework and the Exchange Rate In the sticky-price model, the real exchange rate () is equal to)r-(r-fr0 As long as the domestic real interest rate does not change, domestic conditions will have no impact on the exchange rate38Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The IS-LM Framework and the Exchange Rate Changes in the IS and LM curves that change the domestic real interest rate will alter the real exchange rate by an amount equal to (r r)a rightward shift in the IS curve or a leftward shift in the LM curve will lower the real exchange ratea leftward shift in the IS curve or a rightward shift in the LM curve will raise the real exchange rate39Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.12 - IS-LM and the Exchange Rate40Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The IS-LM Framework and the Balance of Trade Changes in the domestic interest rate affect the real exchange rate which affects gross exports Changes in total income affect imports The effect on net exports is the difference between these two effectsIM-GXNXY)(IM-r)(NXyr41Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.13 - Effect of a Change in Domestic Conditions on the Exchange Rate and the Balance of Trade42Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.An LM Shock and the Balance of Trade Exampleinitial IS curve: Y=$10,000 - $20,000rinitial LM curve: Y=$1000+$100,000(r+3)initial equilibrium: r=5%; Y=$9,000the money supply increasesnew LM curve: Y=$2200+$100,000(r+3)new equilibrium: r=4%; Y=$9,20043Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.14 - Effects of Expansionary Monetary Policy44Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.An LM Shock and the Balance of Trade Example (continued)the decrease in the real interest rate increases the exchange rate by (-r r)= -10 (-.01)=0.10 and the rise in the real exchange rate increases gross exports by (X )=$200 0.1=$20the increase in real national income increases imports by (IMy Y)=$0.15 $200=$30net exports falls by $1045Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.International Shocks Three types of international shocks will affect the IS-LM equilibriuma shift in foreign demand for exportsa shift in the foreign real interest ratea change in foreign exchange speculators view about the fundamental value of the exchange rate46Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.International Shocks An increase in export demand is an increase in autonomous spending (A0)the IS curve shifts rightward by an amount equal to A0/(1-MPS)equilibrium real GDP rises and the real interest rate rises as well (if the LM curve is upward sloping)47Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.15 - Effect of an Increase in Foreign Demand for Exports48Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.International Shocks An increase in the foreign interest rate raises the value of the exchange rate and boosts exportsthe IS curve shifts to the rightequilibrium real GDP rises and the real interest rate also increases (if the LM curve is upward sloping)49Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.International Shocks If foreign exchange speculators lose confidence in their home currency, the exchange rate will risethe IS curve will shift to the rightequilibrium real GDP will rise and the real interest rate will increase (assuming that the LM curve is upward sloping) 50Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.International Shocks ExampleLM curve: Y = $1000 + $100,000(r+3)initial IS curve: Y = $10,000 - $20,000rinitial equilibrium: r=5%; Y= $9,000foreign exchange speculators lose confidence in the value of home currencynew IS curve: Y = $10,120 - $20,000rnew equilibrium: r=5.1%; Y = $9,10051Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Aggregate Demand If the nominal money supply is fixed, an increase in the price level shifts the LM curve to the leftthe equilibrium real interest rate risesthe equilibrium level of real GDP falls If we plot the level of equilibrium real GDP for each possible price level, we will get the aggregate demand curveit will be downward sloping52Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.16 - An Increase in the Price Level Shifts the LM Curve Left (If the Nominal Money Supply is Fixed)53Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 11.17 - From the IS-LM Diagram to the Aggregate Demand Curve54Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Monetary Policy and Aggregate Demand Modern central banks alter the money supply in response to changes in the economywhen inflation rises, the central bank tends to increase the real interest rate55Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Monetary Policy and Aggregate Demand The Taylor rule is a simple model of how central banks actthe central bank has a target value of inflation () and an estimate of what the normal real interest rate should be (r*)if inflation is higher than , the central bank raises the real interest rate if inflation is lower than , the central bank lowers the real interest rate56Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Monetary Policy and Aggregate Demand The Taylor rule can be expressed in equation form:)-(*rr where ” determines h