Abstract
AbstractWe propose a simple macro‐dynamic model to rethink standard policy prescriptions. Our model includes exogenous growth, endogenous capital accumulation and debt, demand‐driven production with a non‐linear IS curve, a dynamic Phillips curve, and fiscal and monetary policy instruments. It has multiple steady states with different stability properties, and it is analytically tractable to a significant extent. We complete the analytical results with simulations. We find alternative growth patterns, endogenous fluctuations, and demand‐driven level effects even in the long‐run. For certain steady states the model shows saddle‐path type instabilities, which lead us to reflect on fiscal and monetary policy standards.
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