An Extreme Keynesian Macro-economic Model with Formal Micro-economic Foundations

Nicholas Rowe

Canadian Journal of Economics, 1987, vol. 20, issue 2, 306-20

Abstract: This paper presents a formal general-equilibrium model of a monetary economy in which agents' decision rules are derived from the underlying preferences, technology, endowments, and information. Firms face kinked demand curves for the reason given by J. Stiglitz (1979)-customers know the price at their current firm but not at other firms. The results are compatible with extreme Keynesian macroeconomic predictions, as presented by G. Woglom (1982). There is no automatic tendency to full employment, and a change in the money supply may cause a permanent change in real output with no change in prices.

Date: 1987
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