Macroeconomics with M4
Brazilian Journal of Political Economy, Vol. 15 No. 1 (1995), Jan-Mar / 1995, Pages 70-83
This article is a remake of usual macroeconomic models, as the IS-LM. We use
as exogenous (under the control of government) the ample monetary aggregate M4. We start
by a careful analysis of the Walras’ identity, extending Simonsen (1983). As a result, it is
possible to see that with M4 it is necessary to abandon either the IS – curve (i.e. equilibrium
in the market for goods and services) or the LM – curve (equilibrium in the money market).
Then, we analyze the demand for M4 in Brazil. Finally, we study a LM4 – LM macroeconomic
model. The usefulness of the model is clear: one can directly verify the impact of variations
on M4 in the macro variables.
JEL Classification: E47; E41; E12.
Keywords: Money demand ISLM model M4