Walrasian Indeterminacy and Keynesian Macroeconomics
AbstractOverlapping generations models with or without production or a portfolio demand for money display a fundamental indeterminacy. Expectations matter; and they are not, in the short run, constrained by the hypotheses of agent optimization, rational expectations, and market clearing. No short run policy analysis is possible without some explicit understanding of how agents expect the economy to respond to the policy. In this framework of perfect foresight and market clearing prices, it is possible to make Keynesian assumptions about the rigidity of money wages and the exogeneity of "animal spirits" of investors, to use the standard IS-LM apparatus, and to derive Keynesian conclusions about the short run effectiveness of policy. Alternatively, starting from difference but no less rational expectations, one can derive the "new classical" neutrality propositions.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 778.
Length: 52 pages
Date of creation: Oct 1985
Date of revision:
Publication status: Published in Review of Economic Studies (1986), 53: 755-779
Note: CFP 1120.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Open Access publications from UniversitÃ© catholique de Louvain
info:hdl:2078.1/88097, Université catholique de Louvain.
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