Axel Leijonhufvud and the Quest for Micro-foundations -- Some Reflections
AbstractAxel Leijonhufvud's On Keynesian Economics and the Economics of Keynes (1968) was a seminal contribution to the literature on what came to be known as the micro-foundations of macro-economics, but its Marshallian approach, which involved analysing the disequilibrium dynamics of markets in which trade at non-market clearing prices would occur, was not that eventually adopted in the early 1970s. Instead, a Walrasian development of monetarism, namely new- classical macroeconomics, which combined the postulate of continuously clearing markets with the rational expectations hypothesis became dominant. Even so, Leijonhufvud's subsequent work on the costs of inflation had an important influence in establishing this phenomenon's policy importance, and, along with his earlier analysis of employment fluctuations, provides still important insights about why the relevance of now-orthodox economics might be limited to helping us understand the economy's performance within a corridor whose boundaries lie close to its full-employment-price-stability equilibrium.
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Bibliographic InfoPaper provided by University of Western Ontario, Economic Policy Research Institute in its series University of Western Ontario, Economic Policy Research Institute Working Papers with number 20063.
Date of creation: 2006
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macroeconomics; micro-foundations; Keynesian economics; monetarism; new-classical economics; general equilibrium; disequilibrium; auctioneer; false prices; money; unemployment; inflation;
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- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
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- NEP-HPE-2006-09-23 (History & Philosophy of Economics)
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- Pedro Garcia Duarte & Gilberto Tadeu Lima, 2011. "Privileging Micro over Macro? A History of Conflicting Positions," Working Papers, Department of Economics 2011_01, University of São Paulo (FEA-USP).
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