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A Post-Keynesian macroeconomic policy mix as an alternative to the New Consensus approach

Author

Listed:
  • Eckhard Hein

    (IMK at the Hans Boeckler Foundation)

  • Engelbert Stockhammer

    (Vienna University of Economics and Business Administration)

Abstract

In a Post-Keynesian (PK) model we show that inflation targeting monetary policies, as the main stabilisation tool proposed by the New Consensus Model (NCM), in the short run are only adequate for certain values of the model parameters, but are either unnecessary, counterproductive, or limited in their effectiveness for other values. Taking into account medium-run cost and distribution effects of interest rate variations renders monetary policies completely inappropriate as an economic stabiliser. Based on these results we argue that the NCM macroeconomic policy assignment should be replaced by a PK assignment. Enhancing employment without increasing inflation will be possible if macroeconomic policies are coordinated along the following lines: The central bank targets distribution between rentiers, on the hand, and firms and employees, on the other hand, and sets low real interest rates, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.

Suggested Citation

  • Eckhard Hein & Engelbert Stockhammer, 2007. "A Post-Keynesian macroeconomic policy mix as an alternative to the New Consensus approach," IMK Working Paper 10-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:10-2007
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    More about this item

    Keywords

    Macroeconomic policies; New Consensus Model; Post-Keynesian Model; inflation targeting;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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