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Non-stabilizing Flexibility:From the Contributions By Keynes and Kalecki Towards a Post-Keynesian Approach

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  • Sau, Lino
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Abstract

New and old mainstream macroeconomics argues that price flexibility stabilizes the economy. After a decline in aggregate demand, the more rapid prices fall, the faster output returns to its full employment level. The theoretical basis for this result is the well known "Pigou effect". However both Keynes and Kalecki rejected the thesis that price flexibility, in a demand-induced recession, can be stabilizistabilizing. This paper seeks to contrast Keynes's and Kalecki's ideas with the mainstream and discuss and alternative approach in the spirit of the post-keynesian's debt-deflation school.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3391.

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Date of creation: 2006
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Publication status: Published in Studi Economici 1.88(2006): pp. 79-92
Handle: RePEc:pra:mprapa:3391

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Keywords: Non-stabilizing flexibily; Pigou effect: Fisher effect; Debt-deflation;

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  1. David Romer, 1993. "The New Keynesian Synthesis," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 5-22, Winter.
  2. 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.
  3. King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, vol. 38(3-4), pages 419-445, April.
  4. Mankiw, N.G., 1991. "The Reincarnation of Keynesian Economoics," Harvard Institute of Economic Research Working Papers 1572, Harvard - Institute of Economic Research.
  5. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  6. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-44, December.
  7. James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
  8. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(325), pages 101-15, March.
  9. Thomas I. Palley, 2002. "Endogenous Money: What it is and Why it Matters," Metroeconomica, Wiley Blackwell, vol. 53(2), pages 152-180, 05.
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Cited by:
  1. Passarella, Marco, 2011. "From the village fair to Wall Street. The Italian reception of Minsky’s economic thought," MPRA Paper 49593, University Library of Munich, Germany.

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