Axel Leijonhufvud and the Quest for Micro-foundations -- Some Reflections

David Laidler ()

No 20063, University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers from University of Western Ontario, RBC Financial Group Economic Policy Research Institute

Abstract: Axel Leijonhufvud's On Keynesian Economics and the Economics of Keynes (1968) was a seminal contribution to the literature on what came to be known as the micro-foundations of macro-economics, but its Marshallian approach, which involved analysing the disequilibrium dynamics of markets in which trade at non-market clearing prices would occur, was not that eventually adopted in the early 1970s. Instead, a Walrasian development of monetarism, namely new- classical macroeconomics, which combined the postulate of continuously clearing markets with the rational expectations hypothesis became dominant. Even so, Leijonhufvud's subsequent work on the costs of inflation had an important influence in establishing this phenomenon's policy importance, and, along with his earlier analysis of employment fluctuations, provides still important insights about why the relevance of now-orthodox economics might be limited to helping us understand the economy's performance within a corridor whose boundaries lie close to its full-employment-price-stability equilibrium.

Keywords: macroeconomics; micro-foundations; Keynesian economics; monetarism; new-classical economics; general equilibrium; disequilibrium; auctioneer; false prices; money; unemployment; inflation (search for similar items in EconPapers)
JEL-codes: B22 B31 D50 D80 D90 E12 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-pke
Date: 2006
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