Capital-Based Credit Cycle Analysis
8 Pages Posted: 10 Oct 2016
Date Written: October 7, 2016
The present model - relates money to capital and economic growth - advances the ISLM-AS approach - captures macroeconomic policy concepts - combines the business with the credit cycle
Capital-based credit cycle analysis links business activity to economic growth and closes the gap between the short and the long run. This approach reinstates capital as a crucial variable of macroeconomics. Capital connects the neoclassical growth theory with money in a model derived from the equation exchange. Based on a strict distinction between the monetary and the real variables, the capital-based credit cycle model provides a tool for identifying the various stages of the business cycle in its relation to liquidity, savings and capital accumulation. As a device for teaching and research, the model offers a consistent analytical framework that will serve as a complement to the standard models of macroeconomics.
Keywords: Credit cycle, business cycle, capital-based macroeconomics, ISLM-AS, GSMS-SS, economic growth
JEL Classification: E32, E44, E52, 04
Suggested Citation: Suggested Citation