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The Two Triangles: what did Wicksell and Keynes know about macroeconomics that modern economists do not (consider)?

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  • Ronny Mazzocchi

    ()

  • Roberto Tamborini

    ()

  • Hans-Michael Trautwein

    ()

Abstract

The current consensus in macroeconomics, as represented by the New Neoclassical Synthesis, is to work within frameworks that combine intertemporal optimization, imperfect competition and sticky prices. We contrast this “NNS triangle” with a model in the spirit of Wicksell and Keynes that sets the focus on interest-rate misalignments as problems of intertemporal coordination of consumption and production plans in imperfect capital markets. We show that, with minimal deviations from the standard perfect competition model, a model structure can be derived that looks similar to the NNS triangle, but yields substantially different conclusions with regard to the dynamics of inflation and output gaps and to the design of the appropriate rule for monetary policy.

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0906.

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Date of creation: 2009
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Handle: RePEc:trn:utwpde:0906

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  1. Athanasios Orphanides & John C. Williams, 2002. "Robust Monetary Policy Rules with Unknown Natural Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 63-146.
  2. van der Ploeg, Frederick, 2005. "Back to Keynes?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4897, C.E.P.R. Discussion Papers.
  3. Giorgio Primiceri, 2005. "Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy," NBER Working Papers 11147, National Bureau of Economic Research, Inc.
  4. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 87-114, February.
  5. Olivier Blanchard, 2000. "What Do We Know About Macroeconomics That Fisher And Wicksell Did Not?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(4), pages 1375-1409, November.
  6. Brakman, Steven & Heijdra, Ben J., 2002. "The monopolistic competition revolution in retrospect," CCSO Working Papers, University of Groningen, CCSO Centre for Economic Research 200215, University of Groningen, CCSO Centre for Economic Research.
  7. David Laidler, 2004. "Woodford and Wicksell on Interest and Prices The Place of the Pure Credit Economy in the Theory of Monetary Policy," University of Western Ontario, Economic Policy Research Institute Working Papers, University of Western Ontario, Economic Policy Research Institute 20045, University of Western Ontario, Economic Policy Research Institute.
  8. Casares, Miguel & McCallum, Bennett T., 2006. "An optimizing IS-LM framework with endogenous investment," Journal of Macroeconomics, Elsevier, Elsevier, vol. 28(4), pages 621-644, December.
  9. Marvin Goodfriend, 2004. "Monetary policy in the new neoclassical synthesis : a primer," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 21-45.
  10. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 665-690, April.
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  12. Woodford, Michael, 2006. "Comments on the Symposium on Interest and Prices," Journal of the History of Economic Thought, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 187-198, June.
  13. Howitt, Peter, 1992. "Interest Rate Control and Nonconvergence to Rational Expectations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(4), pages 776-800, August.
  14. Roberto Tamborini, 2006. "Back to Wicksell? In search of the foundations of practical monetary policy," Department of Economics Working Papers, Department of Economics, University of Trento, Italia 0602, Department of Economics, University of Trento, Italia.
  15. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 77(4), pages 647-66, September.
  16. Boianovsky, Mauro & Trautwein, Hans-Michael, 2006. "Wicksell after Woodford," Journal of the History of Economic Thought, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 171-185, June.
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  1. A summary of the recent DSGE discussion @ Bruegel
    by Dirk in econoblog101 on 2014-01-22 12:49:14
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Cited by:
  1. Jean Luc Gaffard, 2012. "Crise de la theorie et crise de la politique économique : des modèles d'équilibre général stochastique aux modèles de dynamique hors de l'équilibre," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2012-10, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. Ronny Mazzocchi, 2013. "Investment-Saving Imbalances with Endogenous Capital Stock," DEM Discussion Papers, Department of Economics and Management 2013/14, Department of Economics and Management.
  3. Ronny Mazzocchi, 2013. "Scope and Flaws of the New Neoclassical Synthesis," DEM Discussion Papers, Department of Economics and Management 2013/13, Department of Economics and Management.
  4. Elisabetta De Antoni, 2009. "Money and finance: the heterodox views of R. Clower, A. Leijonhufvud and H. Minsky," Department of Economics Working Papers, Department of Economics, University of Trento, Italia 0908, Department of Economics, University of Trento, Italia.
  5. Roberto Tamborini, 2008. "The macroeconomics of imperfect capital markets. Whither saving-investment imbalances?," Department of Economics Working Papers, Department of Economics, University of Trento, Italia 0815, Department of Economics, University of Trento, Italia.
  6. Heinz D. Kurz, 2011. "Von Fall und Wiedeaufstieg einiger Ideen von Lord Keynes. Oder: Zum trostlosen Zustand einer "elenden Wissenschaft"," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 37(1), pages 15-36.

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