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Macroeconomics and monetary policy: competing theoretical frameworks

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Author Info

  • Thomas I. Palley

Abstract

There is widespread agreement that monetary policy matters, but there is disagreement about how policy should be conducted. Behind this disagreement lies differences in theoretical understandings. The paper contrasts the new classical, neo-Keynesian, and Post Keynesian frameworks, thereby surfacing the differences. The new classical model has policy affecting only long-run inflation. The neo-Keynesian model has policy affecting inflation, unemployment, and real wages. The Post Keynesian model also affects growth, so policy implicitly picks a quadruple. Inflation targeting is a suboptimal policy frame because it biases decisions toward low inflation by obscuring the fact that policy also affects unemployment, real wages, and growth.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=NW01902H237M7715
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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 30 (2007)
Issue (Month): 1 (October)
Pages: 61-78

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Handle: RePEc:mes:postke:v:30:y:2007:i:1:p:61-78

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: inflation targeting; monetary policy; neo-Keynesian; new classical; Post Keynesian;

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Cited by:
  1. Angel Asensio, 2008. "(Post) Keynesian alternative to inflation targeting," Post-Print halshs-00335560, HAL.
  2. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
  3. Thomas I. Palley, 2008. "Macroeconomics without the LM: A Post-Keynesian Perspective," Working Papers wp179, Political Economy Research Institute, University of Massachusetts at Amherst.
  4. Angel Asensio, 2009. "Between the cup and the lip," Working Papers halshs-00496911, HAL.
  5. Codrina Rada, 2009. "Introducing Demographic Changes in a Model of Economic Growth and Income Distribution," Working Paper Series, Department of Economics, University of Utah 2009_01, University of Utah, Department of Economics.

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