Economic stability is the absence of excessive fluctuations in the macroeconomy.[1][2] An economy with fairly constant output growth and low and stable inflation would be considered economically stable. An economy with frequent large recessions, a pronounced business cycle, very high or variable inflation, or frequent financial crises would be considered economically unstable.
Real macroeconomic output can be decomposed into a trend and a cyclical part, where the variance of the cyclical series derived from the filtering technique (e.g., the band-pass filter, or the most commonly used Hodrick–Prescott filter) serves as the primary measure of departure from economic stability.
A simple method of decomposition involves regressing real output on the variable "time", or on a polynomial in the time variable, and labeling the predicted levels of output as the trend and the residuals as the cyclical portion. Another approach is to model real output as difference stationary with drift, with the drift component being the trend.
Economic instability can have a number of negative effects on the overall welfare of people and nations by creating an environment in which economic assets lose value and investment is hindered or stopped. This can lead to unemployment, economic recession, or in extreme cases, a societal collapse.
When a stabilization policy is implemented, it generally involves the use of either monetary policy or fiscal policy. Either of these may be advocated by Keynesian economists. However, they are generally opposed by monetarists and real business cycle theorists. Monetarists believe that well-intentioned contercyclical monetary policy will generally be counterproductive, adding to the existing variability of real output, and real business cycle theorists believe that such policies are misguided because they do not address the underlying causes of fluctuations, which they believe lie on the supply side of the economy.
economic, stability, this, article, needs, additional, citations, verification, please, help, improve, this, article, adding, citations, reliable, sources, unsourced, material, challenged, removed, find, sources, news, newspapers, books, scholar, jstor, august. This article needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Economic stability news newspapers books scholar JSTOR August 2023 Learn how and when to remove this template message Economic stability is the absence of excessive fluctuations in the macroeconomy 1 2 An economy with fairly constant output growth and low and stable inflation would be considered economically stable An economy with frequent large recessions a pronounced business cycle very high or variable inflation or frequent financial crises would be considered economically unstable Contents 1 Measuring stability 2 Causes of instability 3 Effects of instabilities 4 Stabilization policy 5 See also 6 References 7 External linksMeasuring stability editReal macroeconomic output can be decomposed into a trend and a cyclical part where the variance of the cyclical series derived from the filtering technique e g the band pass filter or the most commonly used Hodrick Prescott filter serves as the primary measure of departure from economic stability A simple method of decomposition involves regressing real output on the variable time or on a polynomial in the time variable and labeling the predicted levels of output as the trend and the residuals as the cyclical portion Another approach is to model real output as difference stationary with drift with the drift component being the trend Causes of instability editMacroeconomic instability can be brought on by the lack of financial stability as exemplified by the Great Recession which was brought on by the financial crisis of 2007 2008 Monetarists consider that a highly variable money supply leads to a highly variable output level Milton Friedman believed that this was a key contributor to the Great Depression of the 1930s John Maynard Keynes believed and subsequent Keynesians believe that unstable aggregate demand leads to macroeconomic instability while real business cycle theorists believe that fluctuations in aggregate supply drive business cycles Effects of instabilities editMain articles Welfare cost of business cycles and Unemployment Costs Economic instability can have a number of negative effects on the overall welfare of people and nations by creating an environment in which economic assets lose value and investment is hindered or stopped This can lead to unemployment economic recession or in extreme cases a societal collapse Stabilization policy editMain articles Stabilization policy and Macroeconomic policy When a stabilization policy is implemented it generally involves the use of either monetary policy or fiscal policy Either of these may be advocated by Keynesian economists However they are generally opposed by monetarists and real business cycle theorists Monetarists believe that well intentioned contercyclical monetary policy will generally be counterproductive adding to the existing variability of real output and real business cycle theorists believe that such policies are misguided because they do not address the underlying causes of fluctuations which they believe lie on the supply side of the economy See also editAutomatic stabilizer Stability and Growth Pact Global financial systemReferences edit The IMF Promotes Global Economic Stability Economic stability ESCWA Retrieved 2022 12 28 External links editWorld Bank GFDR Report Retrieved from https en wikipedia org w index php title Economic stability amp oldid 1181601967, wikipedia, wiki, book, books, library,
