"The Neglected Market"

Abstract

The purpose of this article is to focus on the market for tangible assets, a market which has often been overlooked in the literature on macroeconomic models. For some macroeconomic problems, the addition of this "neglected market" has little bearing. However, when people change their asset preferences between financial assets (bonds) and tangible assets (previously-produced goods), there are dramatic implications for interest rates and macroeconomic variables generally. Accordingly, this article amends the standard IS-LM model to include a market for tangible assets.