Monetary and Fiscal Dynamics

A macroeconomic shock induces an extended process of adjustment that is characterized by unemployment. This in turn requires a dynamic path of monetary and fiscal policy: as a response to the shock, the central bank continuously adapts the quantity of money so as to keep up full employment all the time. And the government continuously accommodates its purchases of goods and services. Can this be sustained? This study provides an analysis of the situation, conducted within an IS-LM model augmented by the dynamics of money wages, private capital and public debt.