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The Stability of Full Employment. A Reconstruction of Chapter 19-Keynesianism

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  • Hansjoerg Klausinger

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

In the vein of chapter 19 of Keynes's "General Theory" the following study investigates the dynamic properties of the traditional Keynesian model of the neoclassical synthesis. The dynamics (stability vs. instability, monotonic vs. oscillatory adjustment) is examined - in the absence of active stabilisation policy, that is assuming, in particular, monetary policy to follow Friedman's constant money growth-rule - by appending a wage Phillips curve (with inflationary expectations) and adaptive expectations (with rational expectations as a limiting case) to the static model. Furthermore two regimes are distinguished: on the one hand the "flexible- interest-rate-regime" where the nominal interest rate is free to move and on the other hand the "zero-interest- rate-regime" (similar to the Keynesian "liquidity trap") where the non-negativity restriction on the nominal interest rate becomes binding. Some of the conclusions are (i) that although possibly stable within the flexible- interest-regime the system as a whole might exhibit corridor stability", (ii) that wage flexibility can be (and that the inclusion of inflationary expectations into the Phillips curve certainly is) destabilising, and (iii) that increasing the rate of steady-state inflation makes it "more probable" that full-employment equilibrium isstable.

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Bibliographic Info

Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp063.

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Date of creation: Apr 1999
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Handle: RePEc:wiw:wiwwuw:wuwp063

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References

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  1. Collard, David A, 1983. "Pigou on Expectations and the Cycle," Economic Journal, Royal Economic Society, vol. 93(37), pages 411-14, June.
  2. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
  3. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
  4. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-44, December.
  5. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
  6. Robert W. Dimand, 1995. "Irving Fisher, J. M. Keynes, and the Transition to Modern Macroeconomics," History of Political Economy, Duke University Press, vol. 27(5), pages 247-266, Supplemen.
  7. Lofgren, Karl-Gustaf, 1979. " The Corridor and Local Stability of the Effective Excess Demand Hypothesis: A Result," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(1), pages 30-47.
  8. Howitt, Peter W, 1978. " The Limits to Stability of a Full-employment Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(3), pages 265-82.
  9. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
  10. Bennett T. McCallum, 1986. "On "Real" and "Sticky-Price" Theories of the Business Cycle," NBER Working Papers 1933, National Bureau of Economic Research, Inc.
  11. Collard, David, 1996. "Pigou and Modern Business Cycle Theory," Economic Journal, Royal Economic Society, vol. 106(437), pages 912-24, July.
  12. Hansjorg Klausinger, 1999. "German Anticipations of the Keynesian Revolution?: The Case of Lautenbach, Neisser and Ropke," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 6(3), pages 378-403.
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Cited by:
  1. Fellner, Gerlinde & Sutter, Matthias, 2005. "Causes, consequences, and cures of myopic loss aversion - An experimental investigation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 171, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Aleksandra Riedl & Silvia Rocha-Akis, 2008. "Testing the tax competition theory: How elastic are national tax bases in Western Europe?," Working Papers 142, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Engelbert Stockhammer & Paul Ramskogler, 2007. "Uncertainty and exploitation in history," Department of Economics Working Papers wuwp104, Vienna University of Economics, Department of Economics.
  4. Theresa Grafeneder-Weissteiner & Klaus Prettner, 2009. "Agglomeration and population aging in a two region model of exogenous growth," Department of Economics Working Papers wuwp125, Vienna University of Economics, Department of Economics.
  5. Annemarie Steidl & Engelbert Stockhammer, 2007. "Coming and leaving. Internal mobility in late Imperial Austria," Department of Economics Working Papers wuwp107, Vienna University of Economics, Department of Economics.
  6. Theresa Grafeneder-Weissteiner, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Papers wuwp132, Vienna University of Economics, Department of Economics.
  7. Özlem Onaran, 2007. "International financial markets and fragility in the Eastern Europe: "can it happen" here?," Department of Economics Working Papers wuwp108, Vienna University of Economics, Department of Economics.
  8. Engelbert Stockhammer & Paul Ramskogler, 2009. "Post-Keynesian economics How to move forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 6(2), pages 227-246.
  9. Pasquale Commendatore & Ingrid Kubin & Carmelo Petraglia, 2007. "Footloose capital and productive public services," Department of Economics Working Papers wuwp111, Vienna University of Economics, Department of Economics.

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