The Stability of a Disequilibrium IS-LM Model

A disequilibrium version of the standard IS-LM model is constructed and used to analyze the stability of the model. The main feature of the disequilibrium behavior turns out to be a spillover from the money market to the output market; if there is an excess demand for loanable funds (or an excess supply of bonds) firms will be unable to finance all of their desired investment, and aggregate demand will therefore be smaller than would otherwise be the case. This spillover has certain implications for the dynamic behavior of the model. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.