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Stagflation and the Rejection of Keynesian Economics: A Case of Naive Falsification

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  • Zinn, Jesse

Abstract

In this paper I employ Imre Lakatos's methodology of scientific research programs to scrutinize the idea that stagflation in the 1970s falsified the Keynesian research program. I point out that Keynesian models were able to account for stagflation once they included inflation expectations, so the essential tenets of the Keynesian research program are consistent with the would-be anomaly of stagflation. Furthermore, Keynesian economics exhibited both theoretical and empirical progress by evolving in a way that rendered stagflation a logical consequence of Keynesian assumptions. The transition to new classical economics did not yield such progress. Also, as Keynesian economics tends to adopt novel findings and research methods, new classical economics does not have excess theoretical or empirical content relative to the Keynesian research program. In summary, I find that the falsification of the Keynesian program is unwarranted.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50536.

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Date of creation: 09 Oct 2013
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Handle: RePEc:pra:mprapa:50536

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Keywords: Keynesian Economics; New Classical Economics; Monetarism; Scientific Revolutions; Scientific Research Programs; Imre Lakatos;

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  1. Forder, James, 2010. "Friedman’S Nobel Lecture And The Phillips Curve Myth," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(03), pages 329-348, September.
  2. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  3. Tobin, James, 1977. "How Dead Is Keynes?," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 459-68, October.
  4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  5. Paul Krugman, 2011. "The Profession and the Crisis," Eastern Economic Journal, Palgrave Macmillan, vol. 37(3), pages 307-312.
  6. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  7. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
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  1. Links for 7-03-14
    by Mark Thoma in Economist's View on 2014-07-03 00:06:00

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