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Mr. Keynes, the Classics and the new Keynesians: A suggested formalization

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  • Rodolphe Dos Santos Ferreira

Abstract

The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS-LM the generality of Keynes’s theory, clarifying the distinction of voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes’s relative wage hypothesis.

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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2013-16.

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Date of creation: 2013
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Handle: RePEc:ulp:sbbeta:2013-16

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Keywords: Keynes’s model; involuntary unemployment; coordination failures; liquidity trap; relative wages.;

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  1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  2. Roger E. A. Farmer, 2012. "The Evolution of Endogenous Business Cycles," Working Papers 302012, Hong Kong Institute for Monetary Research.
  3. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  4. Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers 374, California Davis - Institute of Governmental Affairs.
  5. Lawrence R. Klein, 1947. "Theories of Effective Demand and Employment," Journal of Political Economy, University of Chicago Press, vol. 55, pages 108.
  6. Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
  7. Kevin D. Hoover, 1995. "Relative Wages, Rationality, and Involuntary Unemployment in Keynes's Labor Market," History of Political Economy, Duke University Press, vol. 27(4), pages 653-685, Winter.
  8. Rodolphe DOS SANTOS FERREIRA & Philippe MICHEL, 1991. "Keynes’ Aggregate Supply Function and the Principle of Effective Demand," Discussion Papers (REL - Recherches Economiques de Louvain) 1991023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  10. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 525-28, August.
  11. Svensson, Lars E O, 1986. "Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 385-405, July.
  12. Axel Leijonhufvud, 1988. "Did Keynes Mean Anything? Rejoinder to Yeager," Cato Journal, Cato Journal, Cato Institute, vol. 8(1), pages 209-217, Spring/Su.
  13. Sylvie Rivot, 2011. "Special remedies for special causes: involuntary unemployment in Keynes' political writings," Cambridge Journal of Economics, Oxford University Press, vol. 35(4), pages 785-803.
  14. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
  15. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
  16. Rodolphe Dos Santos Ferreira & Philippe Michel, 2013. "Keynes' Wage–Price Dynamics," Metroeconomica, Wiley Blackwell, vol. 64(1), pages 44-72, 02.
  17. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
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