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Prolegomena to Realistic Monetary Macroeconomics: A Theory of Intelligible Sequences

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  • Wynne Godley
  • Marc Lavoie

Abstract

This paper sets out a rigorous basis for the integration of Keynes-Kaleckian macroeconomics (with constant or increasing returns to labor, multipliers, mark-up pricing, etc.) with a model of the financial system (comprising banks, loans, credit money, equities, etc.), together with a model of inflation. Central contentions of the paper are that, with trivial exceptions, there are no equilibria outside financial markets, and the role of prices is to distribute the national income, with inflation sometimes playing a key role in determining the outcome. The model deployed here describes a growing economy that does not spontaneously find a steady state even in the long run, but which requires active management of fiscal and monetary policy if full employment without inflation is to be achieved. The paper outlines a radical alternative to the standard narrative method used by post-Keynesians as well as by Keynes himself.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_441.

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Date of creation: Feb 2006
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Handle: RePEc:lev:wrkpap:wp_441

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  1. Harcourt,G. C., 2006. "The Structure of Post-Keynesian Economics," Cambridge Books, Cambridge University Press, number 9780521833875, 9.
  2. Claudio H. Dos Santos & Gennaro Zezza, 2005. "A Simplified Stock-Flow Consistent Post-Keynesian Growth Model," Economics Working Paper Archive wp_421, Levy Economics Institute.
  3. Marglin, Stephen A, 1984. "Growth, Distribution, and Inflation: A Centennial Synthesis," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 8(2), pages 115-44, June.
  4. Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 12(2), pages 259-93, Special I.
  5. Luigi L. Pasinetti, 2005. "The Cambridge School of Keynesian Economics," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 29(6), pages 837-848, November.
  6. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 1(3), pages 215-39, September.
  7. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 23(4), pages 393-411, July.
  8. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198287247, October.
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