Back to Keynes?

Frederick (Rick) van der Ploeg

No 4897, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by JM Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies, however, are the inability to predict a pro-cyclical real wage in the face of demand shocks, the absence of inventories, credit constraints and bankruptcies in explaining the business cycle, and no effect of the nominal as well as the real interest rate on aggregate demand. Furthermore, they fail to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured.

Keywords: Keynesian economics; New keynesian phillips curve; Monopolistic competition; Nominal wage rigidity; Welfare; Pro-cyclical real wage; Inventories; Liquidity; Bankruptcy; Unemployment (search for similar items in EconPapers)
JEL-codes: E12 E32 E63 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac and nep-pke
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://cepr.org/publications/DP4897 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Back to Keynes? (2005)
Working Paper: Back to Keynes? (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4897

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4897
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).