(1) Title: The Endogenous I-S and External L-M Diagram in Equilibrium towards Rules Between Real and Financial/Market Assets

(2) Objectives: Endogenously clarifies the relationships in equilibrium between real and financial/market assets by country, sector, and year, finding financial/market parameters chosen for maintaining the neutrality to the real assets. Proposes hypotheses both at the endogenous diagram and at the endogenous I-S and external L-M diagram, numerically justifying the EMU rule (the Maastricht Criteria and the Stability and Growth Pact (SGP) following the Council agreement of 20 March 2005), and suggesting an integrated model/system of the current EMU rule with flexible BIS rule to banks.

(3) Data/Methods: Uses the author’s 58 country KEWT (Kamiryo Endogenous World Table) 3.09 data-sets by year, 1990-2007, and by sector (where total economy = government sector + private sector), starting with ten original data in /International Financial Statistics yearbooks/, IMF.

KEWT 3.09 endogenously measures, capital, wages, and returns by sector based on theoretical national disposable income /NDI/ instead of actual /GDP/. KEWT 3.09 measures two functions of hyperbolic; the speed of convergence function and the rate of return function, each to the ratio of investment to output. As a result, the author converts the (nominal) trap of liquidity and its deflation rate externally illustrated by Krugman, P. (hp; Figure 2) to the ‘real’ trap liquidity and the ‘real’

deflation rate, where if the market interest rate is added to the real parameters, nominal trap of liquidity becomes free from zero interest rate at minimum. The external/conventional I-S diagram is replaced by the endogenous I-S diagram. And, for the external L-M diagram, the author finds chosen financial/market parameters that satisfy the neutrality to the real assets (such as M2, the 10 year debt yield/interest rate, the exchange rate per US$ or EU). No regulation is required for these chosen parameters, but these do not have each equation, being differ from those equations derived in the real assets.

(4) Endogenous results: The EMU rule was empirically set up in the 1990s. These earlier criteria express robust idea and rules, yet without endogenous measurements and proofs. The endogenous I-S diagram and its extensional diagram justify the EMU rules under equilibrium, clarifying the relationship between the real and financial assets. This paper, therefore, serves for urgent resuscitation of the global economy by country and sector, together with fiscal and financial policies by year that are melted into results within one year.