The "Modern" View of Macroeconomics: Somo Critical Reflections

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The "Modern" View of Macroeconomics: Somo Critical Reflections

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Alfonso Palacio Vera

Abstract

Romer has proposed an alternative macroeconomic framework, i.e., the IS-MP-IA model. Its proponents claim that it constitutes a ‘modern’ view of macroeconomics. We show that the new framework is closely attached to the neoclassical synthesis and, in addition, fails to take account of: (i) the recent empirical evidence on the short-run output-inflation trade-off, (ii) the recent work and evidence on the interdependence of aggregate demand and supply, (iii) the limits of monetary policy and (iv) the consequences for demand-management policy of (i), (ii) and (iii). Once all these aspects are incorporated, we have that short-run stabilization policy is non-neutral in the long run, loanable funds theory becomes irrelevant and aggregate demand becomes the crucial exogenous variable in the short run and, perhaps, also in the long run.

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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales in its series Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales with number 02-17.

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Date of creation: 2002
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Handle: RePEc:ucm:doctra:02-17

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This paper has been announced in the following NEP Reports:

NEP-ALL-2002-11-18 (All new papers)
NEP-HIS-2002-11-18 (Business, Economic & Financial History)
NEP-HPE-2002-11-18 (History & Philosophy of Economics)
NEP-PKE-2002-11-18 (Post Keynesian Economics)

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