Monetarist Rule versus Keynesian Stabilization Policy Mix in a Simple Macrodynamic Model

Abstract

In this paper, we study mathematically the performances of alternative two macrodynamic models, that is, the model with inactive Monetarist fiscal and monetary policy rules and the model with active Keynesian stabilization fiscal and monetary policy mix. It is shown that the dynamic stability of the Monetarist model is not ensured unless some restrictive conditions are satisfied, and the Monetarist model produces endogenous cyclical fluctuations of the main variables under some situations. Then, we argue that the active Keynesian fiscal and monetary stabilization policy mix is required if the inactive Monetarist fiscal and monetary policies cannot stabilize the macroeconomy, and study the dynamic properties of such a model mathematically.