Natural rates in the New Synthesis: Same old trouble?
AbstractThis paper evaluates the concepts of natural rates of interest and output in Woodford's "neo-Wicksellian" and "benchmark New Keynesian" version of the New Neoclassical Synthesis (NNS) by comparing them with the original approach of Wicksell and critical assessments and adaptations by Lindahl, Myrdal, Keynes and Friedman. It is shown that the theoretical foundations of the NNS prescriptions for monetary policy are ambiguous and incomplete. Using the NNS definition(s) of the natural rate of output, New Keynesian policy rules do not necessarily yield results superior to those of "Old Keynesian" strategies of output stabilization. Moreover, natural rates of interest can hardly be defined independently of the influences of monetary policy. The use of natural-rate concepts in the NNS disregards essential problems that were identified in the older Wicksellian and Keynesian literature.
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Bibliographic InfoArticle provided by Edward Elgar in its journal Intervention. European Journal of Economics and Economic Policies (subtitle initially: Zeitschrift fuer Oekonomie / Journal of Economics).
Volume (Year): 6 (2009)
Issue (Month): 2 ()
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Web page: http://www.elgaronline.com/ejeep
natural rate; output gaps; interest-rate gaps; Wicksellian theory;
Find related papers by JEL classification:
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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- Ronny Mazzocchi, 2013. "Scope and Flaws of the New Neoclassical Synthesis," DEM Discussion Papers, Department of Economics and Management 2013/13, Department of Economics and Management.
- Ronny Mazzocchi, 2013. "Investment-Saving Imbalances with Endogenous Capital Stock," DEM Discussion Papers, Department of Economics and Management 2013/14, Department of Economics and Management.
- Ronny Mazzocchi, 2013. "Monetary Policy when the NAIRI is unknown: The Fed and the Great Deviation," DEM Discussion Papers, Department of Economics and Management 2013/16, Department of Economics and Management.
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