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Hysteresis and the New Consensus three-equation model: a Post-Keynesian amendment

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  • Nelson H. Barbosa-Filho

Abstract

This paper presents a Post-Keynesian interpretation of the usual three-equation model of New Consensus macroeconomics. The IS curve, Phillips curve, and monetary rule are obtained from stylized facts instead of intertemporal optimization, while price inertia and the government's inflation target drive expected inflation. The result is a model with no unique natural rate of interest. The central bank can still stabilize the economy through trial and error, with demand and supply shocks altering the system's equilibrium and the possibility of secular stagnation.

Suggested Citation

  • Nelson H. Barbosa-Filho, 2022. "Hysteresis and the New Consensus three-equation model: a Post-Keynesian amendment," Review of Keynesian Economics, Edward Elgar Publishing, vol. 10(1), pages 109-122, January.
    • Handle: RePEc:elg:rokejn:v:10:y:2022:i:1:p109-122
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