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The Two Triangles: what did Wicksell and Keynes know about macroeconomics that modern economists do not (consider)?

Ronny Mazzocchi (), Roberto Tamborini () and Hans-Michael Trautwein

No 906, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: The current consensus in macroeconomics, as represented by the New Neoclassical Synthesis, is to work within frameworks that combine intertemporal optimization, imperfect competition and sticky prices. We contrast this �NNS triangle� with a model in the spirit of Wicksell and Keynes that sets the focus on interest-rate misalignments as problems of intertemporal coordination of consumption and production plans in imperfect capital markets. We show that, with minimal deviations from the standard perfect competition model, a model structure can be derived that looks similar to the NNS triangle, but yields substantially different conclusions with regard to the dynamics of inflation and output gaps and to the design of the appropriate rule for monetary policy.

JEL-codes: E20 E31 E32 E52 D84 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-hpe, nep-mac, nep-mon and nep-pke
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