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Title:The paradox of thrift and crowding-in of private investment in a simple IS-LM model PDF Logo
Authors:Basu, Deepankar
Issue Date:2009
Series/Report no.:Working Paper, University of Massachusetts, Department of Economics 2009-14
Abstract:This paper derives conditions for two key Keynesian propositions in a simple IS-LM model: (a) the paradox of thrift, and (b) the crowding-in of private investment expenditures by government expenditures. A linear specifcation of the model is then presented as a special case that can be used for empirical analysis. Using data for the US economy for the period 1959 - 2009, time series estimation of the linear model using instrumental variables regression shows that the paradox of thrift and crowding-in are real possibilities, especially in the sub-period, 1974 - 2009, that excludes the Golden Age of capitalism.
JEL:E12
E20
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, University of Massachusetts

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