Fiscal Policy And The Economics Of Financial Balances

This paper presents the main features of the macroeconomic model being used at The Levy Economics Institute of Bard College, which has proven to be a useful tool in tracking the current financial and economic crisis. The authors investigate the connections of the model to the "New Cambridge" approach, and discuss other recent approaches to the evolution of financial balances for all sectors of the economy. They will finally show the effects of fiscal policy in the model, and its implications for the proposed fiscal stimulus on the U.S. economy.