Price Flexibility and Output Stability: An Old Keynesian View
AbstractThe central macroeconomic issue is the same as ever. How reliable are automatic market adjustments in maintaining full employment equilibrium in the face of aggregate demand shocks? Many modern theorists assume that nominal prices, including wages, jump instantaneously to keep supply and demand equal in all markets. No excess supply, no involuntary unemployment, can ever arise. However, since actual price adjustments take real time, greater flexibility can be destabilizing. "Real balance" effects are overrated, and the demand effects of nominal price changes are perverse. Activist macro policies are necessary, as Keynes argued, even though nominal prices are far from rigid.
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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 994R.
Length: 36 pages
Date of creation: 1991
Date of revision: Sep 1991
Publication status: Published in Journal of Economic Perspectives (Winter 1993), 7(1): 45-65
Note: CFP 834.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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.:
- Dudley Dillard, 1988. "The Barter Illusion in Classical and Neoclassical Economics," Eastern Economic Journal, Eastern Economic Association, vol. 14(4), pages 299-318, Oct-Dec.
- Plosser, Charles I, 1989.
"Understanding Real Business Cycles,"
Journal of Economic Perspectives,
American Economic Association, vol. 3(3), pages 51-77, Summer.
- James Tobin, 1955. "A Dynamic Aggregative Model," Journal of Political Economy, University of Chicago Press, vol. 63, pages 103.
- Chadha, Binky, 1989. "Is Increased Price Inflexibility Stabilizing?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 481-97, November.
- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- 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.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
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