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Have the early coordination failures models achieved Keynes’s programme ?

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  • Michel, DE VROEY

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

The aim of this paper is to assess how three seminal coordination failure models (Diamond ((1982)1991), Howitt (1985) and Roberts (1987) have fared against ‘Keynes’s programme’. The first part of the paper characterises Keyne’s programme as consisting of the following four objectives : (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, ad (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes’s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes ‘ programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2004019.

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Length: 20
Date of creation: 01 Jul 2004
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Handle: RePEc:ctl:louvir:2004019

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Keywords: involuntary unemployment; coordination failures; Keynes;

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  1. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  2. Peter Howitt, 1986. "The Keynesian Recovery," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 626-41, November.
  3. J. A. Kregel, 1987. "The Effective Demand Approach to Employment and Inflation Analysis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(1), pages 133-145, October.
  4. Drazen, Allan, 1987. "Reciprocal externality models of low employment," European Economic Review, Elsevier, vol. 31(1-2), pages 436-443.
  5. Leijonhufvud, Axel, 1983. "What would Keynes have thought of rational expectations?," Discussion Papers, Series 1 177, University of Konstanz, Department of Economics.
  6. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
  7. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-74, December.
  8. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
  9. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
  10. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
  11. Axel Leijonhufvud, 1983. "What Would Keynes Have Thought of Rational Expectations?," UCLA Economics Working Papers 299, UCLA Department of Economics.
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