Time elements and oscillatory fluctuations in the Keynesian macroeconomic system

Abstract

AbstractIn this paper, we discuss the relationship between three time lags (the consumption lag, the investment decision lag and the gestation lag) and oscillatory economic fluctuations in the Keynesian IS-LM system. We first confirm that in the absence of time lags, the monotone convergence to the unique equilibrium is observed. Next, we demonstrate that, in the Keynesian IS-LM system, in the existence of the investment decision lag and the gestation lag, oscillatory fluctuations are generated around the equilibrium if the gestation lag is relatively long, while in the existence of the consumption lag and the gestation lag, oscillatory behaviors may not occur. We then conclude that the existence of time lags may be one of the major causes of oscillatory fluctuations.