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On the Interplay between Keynesian and Supply Side Economics

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Author Info
Karanassou, Marika (Department of Economics, Queen Mary and Westfield College, London, United Kingdom)
Snower, Dennis J. (The Kiel Institute for the World Economy, Kiel, Germany)

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Abstract

Conventional wisdom suggests that nominal, demand-side shocks have only temporary effects on real macroeconomic magnitudes and that the duration of their effects depends on the degree of nominal inertia. It is also argued that, in the absence of unit roots, temporary supply-side shocks also have only temporary real affects and that the duration of these effects depends on the various sources of real inertia. Our analysis indicates that there is a potentially important interplay between real and nominal inertia in generating the persistent effects of real and nominal shocks. In this sense, then, Keynesian and supply-side economics are mutually interdependent. Our analysis has identified circumstances when real and nominal inertia are complementary in generating real and nominal persistence. Here, we argue, lies a potentially crucial, but as yet largely unexplored, set of determinants of the effectiveness of Keynesian and supply-side economic policies.

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File URL: http://www.ihs.ac.at/publications/eco/es-206.pdf
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File Function: First version, 2007
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 206.

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Length: 29 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:ihs:ihsesp:206

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Related research
Keywords: Unemployment; employment; wage setting; labour force participation; labour market dynamics; unemployment persistence; imperfect unemployment responsiveness;

Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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    Other versions:
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  8. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December. [Downloadable!] (restricted)
  9. Layard, Richard & Bean, Charles, 1989. " Why Does Unemployment Persist?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 91(2), pages 371-96.
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  10. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 183-203, April. [Downloadable!] (restricted)
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  11. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp.. [Downloadable!] (restricted)
  12. repec:cup:cbooks:9780521068659 is not listed on IDEAS
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